Gold prices hit ten week highs overnight before pulling back a bit. Although some back and fill is to be expected price wise, the gold market looks very strong right now and appears poised to notch more gains in the coming sessions.

Gold prices are moving higher despite the notion that the Fed will likely begin tapering its bond purchases very soon-perhaps even next month. Although this price action may go against conventional wisdom, the market is always right and clearly there is strong demand for gold and precious metals. The reality is that the selling that was seen in gold this year may prove to be nothing more than a pullback within a longer term uptrend.

Time will tell of course, but from where we sit right now that certainly looks plausible. It will be interesting to see however, just how the dollar reacts once the Fed does start removing the punchbowl. Considering the fact that many thought the dollar would be strengthening as the Fed pulls the plug, yet the dollar remains on the weaker side of its recent range, could indicate that perhaps the stimulus removal has already been discounted by the market. Should the greenback really start to slide, we could see gasoline thrown on the fire in the gold market and prices could be resting their breakdown level in no time.

Although recent data continues to be good for the most part, there have been some disappoints along the way including last week’s housing data. Looking at interest rates, one has to wonder just how much housing can stabilize and move forward as the cost of money gets more expensive. This is certainly something to be concerned about, and many investors will be monitoring rates very closely. Housing is one of the key catalysts for an economic recovery, and should this sector begin to sputter it could derail a lot of the positive ground the economy has covered in recent months.

This will likely be a quiet trading week in markets as many return from summer vacations and schools begin the school year. Gold will remain focused on the interest rate markets, stocks, and of course the greenback.  The fact that gold has paused here after trading above $1400 overnight is not surprising and is in fact good for the market. We still expect a run towards the 200 day EMA around the $1470 level in the coming weeks. Should prices slide back below the $1360 level more downside may be seen as fresh longs who bought the recent breakout get out.

We will be expecting a return to more normal trading activity in gold next week following the labor day weekend.