Gold prices are trading moderately lower this morning after trading down in the overnight session to the lowest level since mid-October. It is a European holiday as well as Veteran’s Day here in the U.S. and therefore with banks and many government agencies closed for the holiday, trading action is likely to be fairly tame.
With no economic data being released today and the bond market closed, investors will have little to chew on and will likely continue to scrutinize the non-farm payrolls data that blew away expectations on Friday. The debate will now continue as to when and by how much the Fed is likely to begin scaling back its bond purchases.
The reaction to the non-farm payrolls data on Friday was clearly bearish for gold as the dollar strengthened and once again tested its 200 day EMA around the 81.50 level. Recent dollar strength is most certainly playing a role in gold’s recent weakness and should the dollar continue to the upside the road ahead for gold may be that much rougher.
While the remainder of the week is fairly light data wise, the gold market will get to digest weekly jobless claims, Empire State Manufacturing data, industrial production and more. In addition, investors will hear commentary from multiple Fed officials including Richard Fisher and Dennis Lockhart tomorrow followed by Charles Plosser and Janet Yellen on Thursday. Ben Bernanke will be speaking at a town hall meeting in Washington on Wednesday evening as well.
Investors will be looking for clues not only from the data stream but also any commentary from Fed officials about the potential tapering plans of the Fed. While just a few days ago many thought that a March 2014 taper was the likely scenario, following the jobs surprise on Friday many feel that the possibility of a December 2013 taper is now likely. The Fed will hold its next meeting in December and this meeting has the potential to bring such an announcement to the markets.
The idea of the Fed tapering is an underlying bearish factor for gold. The gold market is trending lower once again on the daily charts and is in need of some type of bullish catalyst to stop the bleeding. Whether this is a reversal in the dollar’s recent strength, or an about face by the Fed remains to be seen. For now, stock strength is also taking away from gold’s appeal.
Although in our opinion this trend will not go on forever, it is impossible to predict when it will stop. Perhaps once the Fed does pull the trigger the stock market will shed some of its froth. For now, investors can only monitor the data stream and look for solid support levels that may present long term buying opportunities.
