Gold opened today’s session higher but saw that strength evaporate in early morning trade. As of this post, stocks are moving sharply lower while crude oil and the dollar index also lose ground.
Seeing some early buying in the yellow metal came as no surprise following last week’s losses. The lack of follow through, however, may potentially point to further downside ahead. In fact, gold is not seeing much interest at all today even as stocks are seeing heavy losses.
Markets are still digesting last week’s surprisingly strong non-farm payrolls data for October. The 271,000 jobs created will likely give the Fed the green light it may have been waiting for to raise interest rates for the first time in nearly a decade.
Stock investors appear to be acknowledging an upcoming hike in December and are selling heavily. The question of whether this initial hike causes more significant and prolonged selling in stocks remains to be seen.
While gold has again failed to follow through on upside seen in recent weeks, the yellow metal could potentially be closer to a longer-term bottom. Gold has breached the $1100 area on the downside and may test the summer lows. A breakdown below those summer lows could potentially set the stage for another significant leg lower in gold prices. A final “blow-off” move lower could possibly draw buyers back into the market and gold could potentially stabilize and build a longer-term base from which to move higher.
Ongoing unknowns surrounding monetary policy moving forward may keep gold and precious metals on the defensive for the time being. The dollar, on the other hand, may continue its ascent should policy expectations continue to shift. The greenback is lower today but is at the highest levels seen since April. A breakout above the 100 level on the dollar index could potentially see another significant leg higher in the dollar and may potentially keep gold and commodities under pressure.
Gold may also experience some consolidation ahead of next month’s FOMC meeting. While the market may experience another move lower on a knee-jerk reaction to an actual hike, the gold bulls may potentially see any further weakness as a solid long-term buying opportunity.
In addition to the Fed, precious metals investors will continue to monitor China’s economic activity and global equity markets. A significant turn lower in stocks based on higher rates or economic troubles in other parts of the world could potentially drive some safe-haven buying in gold.
