Never a dull moment in the bullion market...The market began the week on extremely shaky footing with the precious metals gapping down on Sunday night. This gap lower saw silver hit its lowest level since 2010, and it drove gold down to a re-test of the April lows. No one knows for sure what drove this gap lower, but it appeared to just be a continuation of the selling seen the previous Friday.
Regardless of what drove prices lower to begin the week, the precious metals rallied throughout the day. Gold was able to not only fill its gap but close sharply higher.This would appear to be a successful defense of the April lows by the bulls and for now it still seems as if a short term low is in place.
The gold market was bombarded with data to digest this week and thus far has held up well although price action has been very choppy and quite sloppy at times. Gold investors heard commentary from multiple Fed governors as well as Ben Bernanke. The market also got readings on home sales, PMI manufacturing, weekly jobless claims, and durable goods orders.
Clearly the big enchilada of the week was Ben Bernanke's comments as well as the release of the latest FOMC minutes. All in all, it seems there is still some confusion about what the fed may do next. After hearing commentary from James Bullard and William Dudley ( Both Federal Reserve Presidents) the markets seemed content that QE was here likely here for some time to come and that the Fed was not yet ready to start tightening. Bernanke however, gave a bit of a different message.
When specifically asked, Bernanke indicated that we could see stimulus tapering down over the next few meetings. This seemed to catch the markets a bit off guard. Now it is not unusual for the Fed to give mixed signals at all however, in this case there is a lot riding on such a big decision. Stocks finally saw some selling this week and it is quite likely some of the selling was a direct result of the FOMC minutes. Gold fell following the minutes as it does seem that the removal of the punchbowl is upon us.
How gold will react in the coming days is anyone's guess. For now, the bulls have defended their territory as physical demand has remained quite robust. Will this trend continue in spite of higher interest rates? We shall see. The gold market does however, need some type of further catalyst to propel prices higher. Prices back above $1400 could facilitate further interest in gold but thus far the market has not been able to maintain price above that level. In addition, gold remains under some key moving averages. Without some type of driver, whether a fundamental one or a technical one, gold prices will remain on the defensive.
