Gold prices are continuing to hover around their 50 day exponential moving average on Monday near the $1332 level. The market is likely waiting on more data before making up its mind where it goes from here. This week there will certainly be no shortage of data for the gold market to scrutinize. Here on Monday the markets will get readings on pending home sales and the Dallas Fed manufacturing survey.
Tuesday sees the release of the S&P Case Schiller report as well as consumer confidence. On Wednesday, the ADP employment report will be releases as a precursor to Friday’s non -farm payrolls report. In addition, markets will see the latest reading Q2 GDP and the Chicago PMI numbers. Perhaps the biggest market driver on Wednesday will be the release of the FOMC announcement. Although no policy exchanges are expected, investors will be paying close attention to the language contained in the announcement.
Tapering has been the subject of debate for some time, and continues to be. Any clues the Fed gives within its language could certainly drive gold prices and other markets. It is expected that the Fed will stick to a more “Dovish” tone in its announcement, as the Fed does not want to send markets spiraling lower on fears of stimulus removal. Should this be the cease, it could be a positive for gold as the dollar could weaken. Perhaps this will be the catalyst for gold to break through current resistance levels to the upside.
On Thursday, the markets will get ISM manufacturing data, PMI manufacturing,weekly jobless claims, and construction spending. This key data will lead into what is perhaps the biggest potential market mover of the week other than the FOMC which is Friday’s non-farm payrolls data for July. Consensus estimates are for 175,000 new jobs added with an unemployment rate of 7.5%. We expect the data to be in this neighborhood, but any surprises could move markets dramatically. Should the data miss to the downside, this could further the notion that the Fed will stand pat with its bond buying for now. This in turn could give the gold market a boost. The flip side however, is that the number beats expectations and boosts the case for the Fed cutting back. This would likely hurt gold prices as the dollar could strengthen.
We do feel strongly one way or the other that gold’s near term direction will likely be decided this week. The current resistance at the 50 day EMA is key, and it is quite possible that once gold decides which direction it goes from here some heavy follow through is seen. Should gold take this level out to the upside, we feel the potential for a melt up in prices is very real. Conversely, should gold break down here, we feel that a re-test of the June lows could be in store.
