Gold is under some pressure today as stocks sink, crude oil declines and the dollar index rises. The selling being seen in the gold market does not come as much of a surprise today given the large rally seen Friday.
The non-farm payrolls data released Friday likely further cemented the idea of an interest rate hike by the Fed at their December 16th meeting. While such a move by the central bank may have been largely discounted by markets already, the possibility of some near-term volatility does still exist.
Speaking of volatility, there has been significant movement in global currency markets following last week’s ECB meeting. While the ECB did take action, that action fell far short of market expectations and drove the euro currency up over three percent. The dollar index saw a significant drop as it declined from over the 100 level to below the 98 level. As of this writing, however, the dollar index has recouped nearly half the loss seen last week.
The crude oil market is seeing heavy selling once again today as OPEC has abandoned its production target. Crude oil is currently trading at a six year low and further downside pressure may be in store. Lower oil may also be weighing on gold and with crude falling back below the $40 per barrel mark, the market could potentially see another significant slide to $30 per barrel or even lower.
This week is significantly lighter from a data standpoint. Markets will get the latest readings on Mortgage Applications, Weekly Jobless Claims, PPI, Retail Sales, Consumer Sentiment and more. While all of these data points have the potential to be market moving, markets will likely continue to focus on the upcoming interest rate hike.
Stocks may also dwell on the slide in oil prices, which is quite likely playing a large role in the selling being seen in equities today.
If crude oil stays under pressure, stocks may follow suit which could potentially work in gold’s favor. On the other hand, weaker crude may counteract any bullish attention directed to gold in the face of weaker equities.
While gold remains on the defensive from a technical standpoint, some signs do point to a near-term bottom being reached. Gold has likely fully discounted the first rate hike by the Fed and the possibility for “sell the rumor, buy the fact” trade exists. Above the high seen on Friday, a close above the $1100 per ounce level may attract further fresh buying while squeezing more shorts out of the market.
