Posted on August 09, 2013
Gold prices are relatively flat here on Friday as of this post. After trading lower earlier in the session, the yellow metal has now found some more stable footing. The market appears to be consolidating gains from the prior two days.
This is a very light week data wise, and the fact that many investors are on vacation this month is not helping price action at all. Chinese data overnight continued to impress, and the fact that the data coming out of China has been better than expected could lend support to commodities in general. Investors are still pondering the Fed’s next moves however, and until there is more clarity on its potential tapering plans, many investors are likely to refrain from making big bets either way.
Given the improvement seen in data in recent months, it would seem that there is no question the Fed will begin to taper soon, the only question is just how soon. Ben Bernanke did not give any additional clues following last week’s FOMC minutes. Some Federal Reserve officials did speak this week with a more hawkish tone in their comments however, and it seems that based on that many are anticipating that we see the Fed begin to taper in the coming months, perhaps as soon as October.
As we have discussed previously, no one knows how the precious metals will react to this development once it comes to fruition. At first glance it would seem bearish for the metals, however one could certainly argue that this move has been seen coming for some time now, and that perhaps it has already been accounted for in current gold prices.
This time of year there is not a whole lot of new information to report. Investors will continue to monitor economic data closely, and will also likely keep an eye on the stock market as well. A sizable correction could perhaps drive demand in gold should it occur. We do feel that the outlook for gold prices will become a lot more clear once the Fed does begin to taper.
For now we will continue to monitor the price action as that is the best potential indicator. The bulls have regained some steam here, but the critical retest of the 50 day EMA still looms. Should gold prices post a solid close above this level or some consecutive closes above it we feel that more shorts would be squeezed out of the market and fresh longs would enter. This is the battleground to watch for the time being.