Well what a week it has been for gold and precious metals. To start the week off , gold prices opened higher Sunday night and never looked back. Prices on Monday blasted through the 50 day EMA like a knife through warm butter.
Although the market retraced a little bit and flirted with the 50 day EMA again on Tuesday and Wednesday, yesterday’s extremely powerful rally should not be leaving much doubt right now that gold is gaining some solid bullish technical momentum. In fact, prices have been trending higher since the June lows, and it certainly looks like perhaps at the very least an intermediate term bottom is in place. We feel that prices could continue on a sharp trajectory higher, although some consolidation should be expected along the way.
Data this past week was relatively light, however the markets have been able to digest the latest readings on inflation, weekly jobless claims and the Philly Fed survey. All in all, the majority of data continues to point towards an economy that is recovering-perhaps not as quickly as some would like but recovering nonetheless. The PPI and CPI showed basically no inflation, which is good and bad.
One would think that if an economy is gathering some real steam that inflationary pressures might pick up a bit. So far this has not been the case. On the other hand, a lack of inflation could allow the Fed to continue to buy assets or keep rates lower for a longer period of time thus allowing the economy a chance to gain strength. The debate about when the Fed will act and by how much continues-at least until the Fed meeting next month.
Investors continue to watch developments in Egypt. Unfortunately, the situation appears to be escalating thus boosting the safe-haven appeal of gold. Egypt controls the Suez canal, a very important waterway through which a lot of oil and goods must travel on a regular basis. Any disruptions to normal operations at the canal could send oil prices spiking or cause other economic problems.
The dollar has continued to lose ground recently which is also likely giving gold a boost. Perhaps all of the different talk and lack of clarity surrounding the Fed’s plans have something to do with it…Either way, a weaker dollar has also helped give the metals a boost. In addition to the weaker dollar, stocks have come under more pressure recently which can also be very supportive for gold prices. Perhaps the larger scale correction we have referenced in the past is now under way. Should this prove to be the case, it is quite reasonable to think that investors may turn to gold and silver as a place to put cash to work in these uncertain times.
