Posted on January 19, 2015
While markets are closed today in observance of the Martin Luther King Holiday, investors and the gold market will have plenty to chew on as the week progresses. Although this week is lighter from a data standpoint, there will be some other highlights that could drive the precious metals complex.
Tomorrow, investors will see the latest data on the housing market index followed by MBA purchase applications and housing starts on Wednesday. Thursday will bring the latest weekly jobless claims data as well as PMI manufacturing data. Friday will wrap up the week with the latest readings on existing home sales and leading indicators.
The ECB and its course of action may be the highlight of the week. It is widely expected that the ECB will announce a whopping stimulus package in the neighborhood of 550 million euros ($635 billion). It is believed that ECB President Mario Draghi is attempting to invoke the shock and awe response-and convince investors and members of the union that the strategy consists of enough monetary muscle to fight deflation and ignite the region’s economy.
Anticipation of this stimulus package has sent the euro currency to 11 year lows. While the shared currency continues to slide, the actual announcement of these plans may offer some respite from the selling. As the euro has sunk the dollar has risen, and while a stronger dollar may act as a form of resistance to higher gold prices, the gold market has begun to shrug off the rising dollar index. In fact, gold rising in spite of a rising dollar would seem to indicate a degree of underlying market strength.
Should the euro currency begin to find a floor at some point, it could potentially help propel gold prices higher as profit taking would likely ensue in the dollar. While the yellow metal may rise even without this scenario unfolding, any significant dollar weakness could potentially attract more fresh buying interest.
Gold may potentially continue to rise if additional risk aversion sets in. Markets were shocked this past week by the actions of the Swiss National Bank, and investors may continue to be nervous over currency markets as well as ongoing economic troubles in Europe and Japan. While stock markets remain near their recent highs, the increase in volatility being seen in recent weeks could potentially be indicative of a topping process in equities. Significant stock weakness could also potentially drive gold sharply higher as investors take profits in stocks and look for alternatives to put cash to work in.