Gold is showing some strength in early trade today and starting the week off on a good note. Stocks and crude oil are also both moving higher in early trade while the dollar index declines.
The weakness being seen in the dollar index today is likely giving gold and commodities a boost. The greenback is trading at the lowest level since last August and further weakness could potentially be in store. A five year chart of the dollar index shows how precariously close the currency is to entering a fresh leg lower in price. In fact, a downside breach of last summer’s lows could potentially fuel a significant slide in the dollar that could potentially see the dollar index moving down to the mid-80s.
Such a move lower in the greenback could potentially drive a significant rally in gold and other commodities.
After making a series of lower highs, the gold market traded below $1210 per ounce but once again found willing buyers on the dip. The market has since been moving higher again and could potentially be poised to test the recent highs near the $1290 level. A break above this level could potentially entice more fresh buying and the rally could gather more steam.
While there is no data set for release today, investors will get plenty of news to scrutinize the rest of the week. Markets will get the latest readings on Import and Export Prices, Retail Sales, PPI, Beige Book, CPI, Weekly Jobless Claims, Empire State Manufacturing, Industrial Production, Consumer Sentiment and more.
The inflation data will likely be watched closely as a lack of inflation has remained a cause for concern. In addition, the Fed’s Beige Book will also likely be closely monitored as investors continue to await more clarity on the central bank’s plans regarding interest rates.
While gold and equities are currently moving higher together, one has to wonder if at some point these markets will diverge. Stocks are approaching previous all-time highs and hopes for the upcoming earnings season appear to be driving some buying. That being said, however, numerous causes for concern remain in global equity markets and the market’s ability to begin a fresh leg higher remains in question. A breakdown in equities could potentially propel the gold market significantly higher from current levels and any ongoing weakness in stocks could potentially see gold enter an extended bullish cycle.
