Gold prices are starting the week off on the right foot. As of this post, spot gold prices are trading higher by over $15.00 per ounce as the market looks to break out to the upside from its recent price range. There are a number of bullish influences effecting the gold market right now, and the possibility of further upside in the coming sessions is very real.
For starters, the SPDR exchange traded gold trust saw gains in its holdings for the first time in two months. With so much talk in recent months about the effect of the “Paper” gold market on gold prices, it should come as no surprise that seeing the paper gold market stabilize is giving gold prices a boost. Whether or not gold backed ETFs continue to see gains in holdings remains to be seen, but for now the gold bulls are cheering this development.
Chinese demand for gold is very strong and continues to grow. In addition for physical gold demand, the Chinese stock market continues to move higher as investors bet on additional stimulus measures by the Chinese government. Strength in Chinese markets is a bullish factor for commodities in genera.
Short covering. We have talked about this for months now, but the fact remains that such a large short position in gold would likely get unwound at some point. Perhaps we are seeing more of that unwinding now.
This week the markets will get the latest readings on CPI, PPI, housing starts and consumer sentiment. While any of these can effect gold prices, it is likely that investors will continue to listen for clues about the Fed’s tapering plans. Last week saw some Fed officials speaking with a more hawkish tone, and there still seems to be some disagreement as to when and how the Fed may begin to unwind its stimulus.
Bullishly for gold and silver, the precious metals are higher today even with a stringer dollar. One could certainly make the argument that this is an underlying sign of strength. Also of note for gold bulls is the fact that silver is breaking out of a two month trading range today. The complex looks stronger today, and fresh buying along with a short squeeze could send prices much higher from current levels. The $1328 area in gold is key. This is the 50 day EMA. Should this price level get taken out to the upside, the gold market could see a lot of fresh longs entering as more shorts exit. This has the potential to lead to a very sizable rally in gold prices.
