Gold prices are moving sharply lower this morning as investors continue to weigh recent comments by the Fed and monitor any new developments in Ukraine. In addition to some of the current underlying bearish factors affecting gold prices, technical selling is being seen in the yellow metal following the recent change in trend on the daily chart.
News out of China last night showed the HSBC manufacturing index falling to an eight month low. The gauge remained below the 50 level which indicates a contraction in the reading. This latest piece of weaker data out of China seems to reinforce the notion that China is in fact seeing a significant slowdown. The question now becomes whether or not China will look to boost its economy through stimulus measures. The concern over slowing growth in China has been a bearish factor for commodities and could potentially weigh on commodity prices for the foreseeable future.
The situation in Ukraine continues to be a source of anxiety for investors all over the world. Russian troops continue to mass near the Ukrainian border and the situation could potentially escalate at any point. Over the weekend, the Russian navy took control of Ukraine’s only submarine following the takeover of Ukraine’s navy headquarters last week. Violence in the conflict has been kept to a minimum thus far-but it seems that the likelihood of conflict is increasing by the day. Stocks have held up well thus far, but could begin to crack at signs of violence in the region. This could potentially boost gold prices and safe haven assets as well.
In the meantime, gold investors appear to be somewhat fixated on the Fed and monetary policy. It seems as if the notion of higher rates is finally becoming an actual reality. While still likely being a year or more down the road, the idea of easy money will soon be something of the past. This appears to have gold buyers worried as higher rates increase the cost of gold ownership and reduce the appeal of gold. In addition, higher rates are more likely to keep inflationary pressures in check thus also reducing gold’s appeal.
It will no doubt be an interesting year in the gold market as more and more investment banks and analysts turn bearish. Time will tell how this and other factors play out in the gold market. This week will be fairly light data-wise, and gold investors will likely remain focused on the situation in Ukraine. The technical picture for gold has deteriorated a great deal recently, and without a large push by the bulls in the very near future, the market is likely to see further weakness.
