Spot gold is trading moderately lower today as the U.S. dollar index strengthens and the Euro comes under pressure. The gold bulls have until today done a good job of holding their ground. After beginning the week on shaky footing, the gold market was finally able to take price back above the $1400 level and some key moving averages. This move likely shook out some of the weak shorts in the market and was fueled by a lower U.S. dollar index. While the bears maintain long term control of the market still, this weeks price action could indicate more upside to come.
It is worth noting however, that as of right now the losses in gold today are beginning to accelerate and prices are now back below the psychologically important $1400 level. There is a lot of day to go today still, but depending on how prices close the day today we could be seeing a technical failure in price right now. Prices were above and around the 20 day EMA yesterday, and thus far today it appears that gold is being sold from this level. A drastically lower close today will likely take a lot of wind out of the bulls’ sails and could lead to lower prices again the first part of next week.
It seems pretty clear what is occurring right now. The markets are very closely scrutinizing every piece of data that comes out. It seems that when the data is weaker than expected, the dollar loses ground and gold rallies. When the data is better than expected, the dollar strengthens and gold prices slide. Although this is a bit of a generality, it goes to show that bets are being made by investors as to the timing and or degree of the fed taking its foot off the gas.
This is not unexpected, and could continue for some time until there is more certainty about the fed’s actions. The market is looking forward to next Friday’s non-farm payrolls report. This report could really determine the fate of gold prices in the near term. If the report is good, stocks rally ,and gold likely comes under pressure as the dollar strengthens. If the report is lousy, stocks still likely rally as the fed would then be more inclined to continue its QE operations. This would likely weaken the dollar and could potentially be a positive for gold. The point is-there will be a lot riding on this report.
In other outside markets, crude oil continues to slide lower although maintaining a trading range while the dollar is showing some signs of fatigue this week. Stocks and the dollar will be the primary drivers of gold for the time being.
