Posted on November 03, 2014
Gold prices are quiet today to begin the new trading week. Following recent volatility seen in the gold market, some back and fill consolidation will not be unexpected.
Investors will have a fair amount of data to chew on again this week. Some highlights of the economic data to be released include: PMI and ISM Manufacturing data, factory orders, the ADP employment report, weekly jobless claims and ISM Non-Manufacturing data. The biggest piece of data for the week is the non-farm payrolls data for October which will be released Friday morning.
Now that the Fed has officially ended its bond buying program, it is likely that investors will pay even closer attention to these data points. Any signs of weakness in the data could potentially give investors reason to pause and could potentially weigh on the ongoing rally in stocks. With the SP500 having reclaimed the 2000 level, the stock market appears headed towards another leg higher. One has to wonder, however, if the same buying vigor will be seen without the Fed providing a crutch.
The gold market continues to have a number of headwinds working against it. Unfortunately for the gold bulls, these headwinds do not appear to be going away anytime soon. As risk appetite remains robust, perceived safe haven assets such as gold will likely stay under pressure. As long as equities stay strong, it may be tough for the gold bulls to rally significant buying interest in the yellow metal. The dollar index also continues to be a major headwind to higher gold prices. The greenback has taken out its recent highs and appears headed on another significant leg higher. Deflationary pressure in the Euro zone along with the continuing economic difficulties in Japan may keep a floor under the dollar index for some time.
From a technical standpoint, the gold market appears to be headed lower. Last week’s breach of support in the $1183 area has possibly set the stage for a significantly lower gold price. $1000 per ounce gold cannot be ruled out and could potentially be seen in the coming weeks or months. That being said, a test of the breakdown point is a distinct possibility. If gold tests the $1183 area and fails, then the bears will likely have sufficient ammunition to take prices lower. On the flip side, if gold were able to test this prior support area and decisively break out above it, then the stage could potentially be set for a large scale short covering rally. A test of this area will likely determine gold’s direction for the foreseeable future. The bears remain in firm control of the market, however, until proven otherwise.