Gold prices are moving sharply higher this morning to begin the new trading week as risk appetite continues to wane. Gold prices are up over $22 per ounce as of this post as stocks sell-off sharply and treasuries move higher.
This week investors will get a fair amount of data to digest and will also continue to closely monitor strains in emerging markets currencies. Earlier this morning, investors got the latest reading on the PMI Manufacturing Index as well as the ISM Manufacturing Index and construction spending. Manufacturing data showed some weakness and this comes after China’s Purchasing Manager’s Index came in at a six month low.
Markets will get the latest reading on factory orders tomorrow as well as hear commentary from Fed officials Jeffrey Lacker and Charles Evans. On Wednesday, the ADP employment report will be released as well as the ISM Non-Manufacturing Index. Thursday will give investors the latest readings on productivity and costs, weekly jobless claims and international trade. Friday will bring the biggest economic data piece of the week in the non-farm payrolls report for January. It is expected that the U.S. created 181,000 jobs while the unemployment rate sat still at 6.7%. Last month’s payrolls data showed a job increase of only 74,000 jobs which was blamed on weather and other factors. It will be interesting to see if the numbers for January show any signs of cracking as well.
The Fed has tapered its bond purchases by another $10 billion per month citing stronger economic conditions. The question then becomes is the weaker-than-expected data we are seeing currently a sign of a larger trend change or simply a rough patch? This remains to be seen but investors appear to be content cashing in some gains after the recent run up in stocks. It should be noted, however, that thus far what is being seen in stocks may only be a normal correction before the market attempts another leg higher in prices. It is simply too early to tell if the recent slide will run beyond a normal pullback type of scenario. It does appear that gold, however, may stand to benefit if stocks continue to slide and the economic data continues to show signs of weakness.
Gold is still maintaining a fragile uptrend on the daily chart but needs to take out the recent swing high in the $1280 area sooner rather than later. This could set the stage for gold making a run above $1300 and possibly testing the $1320 area in short order. The $1220 level remains the line in the sand on the downside.