Posted on May 12, 2014
Gold prices are moving higher this morning to kick off a new trading week. Today’s reversal and gains in gold are somewhat interesting given the stock market’s strength early on today. As of this post, gold prices are back above the psychologically important $1300 level. Overnight, gold was showing signs of weakness and was trading around key support in the $1280 area. That key support has once again held the gold bears, and perhaps now more bulls will jump back into bullion.
There are a few things that are likely driving gold today. The situation in Ukraine continues to unfold and the potential for further escalation is very real. Over the weekend, a secession referendum vote was taken in Eastern Ukraine and was won by the pro-Russian separatists. The Russian government stands by the vote, while the Ukrainian government claims the vote was illegal. Russia is facing further economic sanctions, but appears willing to try and stay the course on their position. This situation does not appear to be going away any time soon, and it is quite likely that gold will continue to see safe-haven buying by nervous investors. World markets appear to be able to continue shrugging off the developments in Ukraine, although one must wonder just how far investors’ tolerance may be stretched.
Also potentially playing a role in gold’s good fortunes today is the elections in India. It appears that the BJP party may win the election. This party is considered to be more “gold-friendly” and could potentially relax some restrictions on gold in India. This likely has contributed to some fresh buying in bullion today.
Short covering is also likely being seen today as gold once again held key support. The question for gold now becomes; can it distance itself from the $1300 level? The bulls need to extend this move to further shake out shorts and attract more fresh buying interest.
This week is on the lighter side data wise. Investors will get the latest readings on the housing market index, consumer price index, weekly jobless claims, Empire State manufacturing, Philly Fed, housing starts and consumer sentiment. While any piece of data can potentially be market moving, the gold market will likely pay close attention to ongoing developments in Ukraine, ongoing developments in India, the stock market and the dollar index. A breach above 80 in the dollar index could potentially weigh on gold and precious metals, while any stock weakness could potentially invigorate the bulls.