Gold prices were in the red on Friday. Gold futures for April delivery settled down $11.40 per ounce at $1594.80. The yellow metal has had a difficult time maintaining trade above the key $1600 level. In fact, gold’s failure to take out overhead resistance at the $1615.50 area caused bulls to give up this week-at least for now.
All things considered, gold prices did not do a heck of a lot this past week given the amount of headline risk that was present in the marketplace. Market participants were on pins and needles last weekend as the world stood by to see if an agreement in Cyprus could be reached prior to markets opening on Monday. An agreement was in fact reached, and markets have been breathing a collective sigh of relief ever since. Is this the last we here of Cyprus? Doubt it…
The debate will continue as to whether or not the correct action was taken. The potential consequences of what has transpired remain to be seen. The threat of future banking issues in the EU remains very high, and a run on banks cannot be ruled out any time soon. Markets are quick to forget-at least temporarily….This situation will be monitored closely by market participants and can clearly turn on a dime. The gold market will be watching very closely, and any hints of further unrest could send buyers piling back into gold very rapidly…
On the economic front, U.S. date continues to beat expectations for the most part and this has weighed on bullion prices. In a zero interest rate environment, people are forced to chase returns and are forced to take risk to achieve those returns. Until Bernanke and company halts the printing presses, it is likely that the data stream continues to show improvement and that the equities and risk assets keep moving higher. At some point this will all come to an end, the question is just when.
Many experts out there question the economy’s ability to stand on its own two feet without the Fed pumping in the liquidity. When the time comes, we shall see. It is likely however, that once the Fed does indicate the beginning of the tightening cycle risk assets and stocks will come under pressure. Although this scenario would likely strengthen the dollar, it is also quite possible that we see renewed interest in precious metals once this occurs as investors may rotate back into a more diversified portfolio.
Not much has changed from a technical standpoint in gold this week. The market continues to trade sideways with the bears having technical control currently. This likely will not last much longer. The market will either take a run at the February lows, or take out resistance at the $1615-$1619 area and move higher. Headlines will continue to drive gold prices. Keep in mind also that the longer the market trades in this small range, the larger the breakout may be when it comes!
