Gold prices are moving sharply higher today to begin the holiday-shortened trading week. The gold market is moving higher today as some short covering takes place and some follow-through buying is seen after Friday’s gains.
Unfortunately for the gold bulls, the market still has two significant roadblocks standing in the way of higher prices.
Crude oil continues to be a main area of focus for market participants. Oil prices are back near their recent lows and could potentially be on the verge of another significant leg lower in price. The possibility of $20 per-barrel oil seems to be gaining more credibility as the market has not been able to put together any meaningful rally higher. The current supply situation may keep crude under pressure for some time to come. Lower oil has driven selling in stocks and could potentially stoke further fears of deflation.
Dollar strength is also likely weighing on gold and precious metals. Although the greenback recently pulled back from the recent highs, the dollar has recovered much of those losses and could potentially be poised for further upside in the New Year. Much of the dollar strength in recent months, however, may have been driven by the notion of higher rates and now that the Fed has taken action it remains to be seen whether or not the dollar will continue higher or will encounter some weakness on “buy the rumor sell the fact” type of price action. For now, however, the higher dollar remains a possible source of resistance for gold and precious metals.
This week will be light from a data perspective. Investors will get the latest readings on Q3 GDP, Existing Home Sales, New Home Sales, Consumer Sentiment, Weekly Jobless Claims and more.
Markets may see some sideways price action this week and next as many investors take off for the holidays. While lower trading volumes can lead to stagnant markets, they do also have the potential to drive volatility and erratic price action.
Now that the Fed has initiated lift-off, the next few weeks may be critical for gold. While some have suspected that gold could finally rally once the Fed did take action, the gold market could also have another leg lower in store before finding more solid support. Gold has been in a relatively tight range in recent trade and the market may not tip its cards until investors return after the New Year.
