Posted on January 05, 2015
Gold prices are higher this morning to begin the first week back from the holidays. Trading activity and volumes will likely begin to return to normal over the coming days, and some investors may begin reallocating assets as the new year gets under way.
The Euro remains in the headlines today as concerns over upcoming Greek elections and the notion of a Greek exit from the Euro bloc intensify. Should the anti-austerity Syriza party win in upcoming elections, concerns about Greece sticking to the terms of its EU, ECB and IMF bailout will only fester.
Ongoing concerns over Greece and the notion of further stimulus measures coming from the ECB have kept the shared currency under pressure. The Euro today is trading at a nine year low and is thus far not showing any signs of slowing. As the Euro moves lower, the dollar index is once again moving higher. In fact, the greenback continues to appear poised for additional gains and could potentially see considerable upside if the Euro does not find a floor. While a higher dollar index can be bearish for gold prices, gold is bucking that trend today and seeing buying interest.
Gold has held up fairly well given recent dollar strength and this could be a sign of some underlying market strength. The near-term outlook for gold remains higher, although the longer-term trend still remains on the weak side. Gold appears to have made a near-term bottom in the $1132 area, and is now in a state of price congestion. The current area of price congestion will likely not last forever, and the gold market may tip its hand in the coming days and weeks. An upside breakout of this congestion zone will likely fuel additional fresh buying interest in the metal. This could potentially take gold prices back up for a test of resistance areas in the $1240-$1260 zone. A break above this level would greatly improve the intermediate term outlook for gold.
This week will bring plenty of data for investors to digest. This data includes the most recent readings on factory orders, ISM non-manufacturing and PMI services. Data highlights for the week include Wednesday’s release of the latest FOMC meeting minutes and Friday’s non-farm payrolls report.
The FOMC minutes may show a more hawkish Fed and investors will be looking for further clues as to the timing and extent of interest rate hikes. In addition, investors will be listening closely for the Fed’s assessment on current economic conditions. While nothing new is expected from the release, the Fed minutes always have the potential to be market-moving.
Friday’s non-farm payrolls data is expected to show an increase of 245,000 jobs with the unemployment rate dipping slightly to 5.7 percent. A large miss in this report could potentially cause profit taking in the dollar and equity weakness. Gold prices could potentially stand to benefit should this prove to be the case.
Stock strength may continue to hold the key to higher gold prices. Should equities begin to falter for any reason, gold may see additional buying interest and benefit from asset reallocation as the new year gets under way.