Well gold is still trying to make up its mind regarding the near-term direction it wants to take. Since the beginning of this week, gold has basically traded in a range from today’s lows of around $1560ish to the $1585 area (Looking at futures for April delivery.) This sideways price action could certainly be construed as a market remaining uncommitted and looking for more information before making a move.
When looking at markets, and at gold specifically, it is imperative to keep the larger picture in mind at all times. Too often a solid investment plan can go awry when one does not see the forest through the trees. That being said, let’s take a look at what is happening with the economy and global markets and how it may effect gold prices.
The economy continues to improve. Like it or not,the data stream that has been coming out does show a consistent, yet unexciting uptrend in economic data. Manufacturing, housing, and jobs are all showing signs of stabilization. Many consider jobs to be of the utmost importance when it comes to economic health.
Today’s price action following the non-farm payrolls report was a great example of what has been happening in gold lately. The U.S. added 236,000 jobs last month and the unemployment rate ticked down to 7.7% which is the lowest reading since 2008. Following the data, the equities markets took off to the upside, the euro currency tanked, and gold tanked along with it. The greenback conversely moved higher. This dollar strength is often, but not always, a negative for gold prices.
What would seem to be the continuing scenario is gold is being sold as investors look for more risk and buy equities and other risk assets. This trend is not likely to go on forever, but one can never really tell when it will end. The immediate sell-off in gold following the data would seem to demonstrate that gold has been held as a perceived “safety” instrument and that trade is continuing to be unwound. The concern is the degree of complacency in markets right now.
It seems as if everyone out their is now bullish equities and risk assets. The media is covering the new Dow all time highs like crazy…. When the media starts to talk about it that usually means the move is coming to an end. As all the late bulls get into the action, the people that have been long for the move may be happy to sell to them and take profits. This is normally when an uptrend comes to an end-at least in the short-term. Perhaps this will be the catalyst for the gold bulls to re-establish control.
For now, the levels to watch are the recent swing lows around $1554ish and near-term resistance at $1585.
Chart Source: QST