Gold prices are moving sharply lower in early trade today as stocks, crude oil and the dollar index rally. Overall risk appetite appears to be improving driving stocks higher while giving investors reason to sell perceived safe haven assets, such as gold.
China got the rally going to begin the new trading week, as an additional cut in home sales tax drove the Shanghai index up over two percent. The broad market SP500 s working higher following another round of significant selling seen in recent weeks. Further strength in the index could potentially see prices move back towards the 2000 level. Equity market strength could potentially weigh on gold as investors seek to buy stocks on the cheap.
Crude oil is also moving sharply higher today and is trading above $33 per barrel this morning. As has been the case for some time, stocks seemingly rally in the face of higher crude oil and decline when crude is on the defensive. While the oil market remains in a firm downtrend, there has been increasing talk of a possible bottom being in place. If crude oil is able to stop the bleeding and continues to recover, stocks could see additional buying interest while gold could be put on the defensive.
The dollar index is sharply higher today as the Mayor of London has come out against the U.K. remaining in the EU. After seeing some significant selling pressure in recent trade, the dollar index has been moving higher in recent days and has recovered about half its recent decline. The dollar could potentially see additional upside that could potentially keep the gold bulls on their heels.
This week, investors will have plenty of data to scrutinize. Today, markets got the latest reading on PMI manufacturing. The rest of the week will bring the latest readings on Existing Home Sales, Consumer Confidence, the S&P CaseShiller Housing Price Index, New Home Sales, PMI Services Flash, Durable Goods Orders, Weekly Jobless Claims, GDP, Personal Income and Outlays and Consumer Sentiment.
Investors will likely watch equity markets closely and will also be on the lookout for any further clues from the Fed regarding the pace of further interest rate hikes. Interest rate expectations appear to have shifted in recent weeks, and there is debate about the whether or not the central bank will move on rates at the March meeting. Recent dovish commentary has likely been a contributing factor to gold’s recent rise, although a shift back towards a more hawkish tone could potentially drive longs out of the gold market.
Despite gold’s weakness today, the path of least resistance still appears to be higher until proven otherwise. A decline below the $1180 level could, however, cause more bulls to throw in the towel and gold could once again be stuck in a trading range.
