Gold prices are steady to slightly lower this morning to kick off the new trading week. Gold hit a near two month high in overnight action. Markets are definitely showing some signs of stress currently and the gold and precious metals markets could stand to benefit. Although stocks are up today, Friday saw huge losses in the broader market as some anxiety crept into the market place and some investors started to cash profits in. The big question now is if this is a sign of more selling to come. As we have discussed in several previous posts, a stock market correction or meltdown, could benefit precious metals as investors look for alternative places to put cash to work. Investors have several things on their minds currently that could lead to more selling in the coming sessions. These issues include:
The FOMC This Week – The Fed will be holding another meeting this week and it is expected that the Fed will cut its quantitative easing by another $10 billion per month. It seemed previously as if stocks had already discounted the Fed pulling back on the throttle, however, once the Fed does begin taking more action stocks could come under more pressure. This remains to be seen but could actually work to gold’s benefit.
Currency Stress – A number of emerging market currencies have come under stress recently most notably the Argentine peso. Investors will be paying close attention to any developments in this area as these issues could become quite ugly very quickly. This could very well help keep a bid in gold and silver for the time being.
China Weakness – China has shown further signs of slowing and is also showing some signs of stress in its financial system. Further signs of weakness in the Chinese economy or a liquidity crunch in China could wreak havoc on world markets and drive flight to safety buying in gold and precious metals.
Although there are several other data points set for release this week, the FOMC will likely dominate the headlines. It will be interesting to see how markets hold up this week following the massive sell-off on Friday. For now, the gold bulls have the near-term technical upper hand. Despite sliding a bit today, the gold market still looks poised for a run at $1300 in the coming days. One should be aware, however, that the gold market may experience some volatility ahead of the FOMC announcement. Short covering and position squaring are likely to dominate trade ahead of the Fed and can make for some wild price swings.
