Posted on January 11, 2016
Gold prices are slightly higher today in mid-morning trade as the dollar index strengthens and some profit-taking is likely taking place. The yellow metal is currently hovering around the $1100 per ounce level as ongoing safe haven appeal has kept any dips to a minimum.
After opening higher this morning, stocks have thus far been unable to hold the gains. While the market is not currently down significantly, the inability to hold the higher open suggests further downside may be in the cards. Investors continue to watch Chinese markets closely and further volatility in China could potentially send stocks for another leg lower. Last night, Chinese stocks fell by over five percent as the market hit a multiyear low.
Investors also continue to pay close attention to crude oil and other commodity markets. Oil opened lower this morning and is currently trading under $32 per barrel. A move to $30 seems likely at this point, while some believe that a move towards $20 per barrel may still be in the cards. Copper, considered by many to be a good overall barometer of economic activity, opened lower this morning, as well, and is currently trading under the $2.00 level. Lower commodity prices are causing investors some anxiety as the threat of deflation hangs its ugly head over global markets.
Weaker Chinese economic data could keep the pressure on the commodity markets and stocks could remain under pressure until commodities find a bottom.
In addition to worries over China, investors have many other issues to contend with. Recent actions by North Korea are certainly a cause for concern, while ongoing tensions in the Middle East are also adding to investor anxiety.
While the data stream is on the lighter side this week, investors will have additional economic data to consider. This will will bring the latest readings on: The Fed Beige Book, Weekly Jobless Claims, PPI, Retail Sales, Consumer Sentiment, Empire State Manufacturing and more.
Investors will be watching this data and looking for further clues from the Fed about the possible pace and timing of additional interest rate hikes.
Gold may see continued buying interest as risk aversion remains elevated. It should be noted, however, that stocks dropped in a similar fashion in August and September as Chinese equity markets saw significant volatility expansion. Stocks then largely recovered, however. While a similar chain of events could potentially take place this time around, it seems that there are even more concerns to address and stocks could have a more difficult time attempting to bounce back.