Posted on May 05, 2014
Gold prices are moving higher here to kick off the new trading week as some bullish follow through is being seen after last week’s strength. Gold prices are up about $10 per ounce this morning, as the yellow metal tries to distance itself from the $1300 level. Fresh buying along with additional short covering appear to be driving bullion. There are currently a few things that are potentially driving gold from a fundamental standpoint:
The situation in Ukraine appears to be deteriorating. Violence was seen over the weekend as Ukrainian forces attempt to oust pro-Russian separatists. Unfortunately, it is not looking at this point like a peaceful solution is going to be found any time soon. The U.S. is gearing up for further sanctions, along with U.S. allies. Although the Russian economy is clearly being hurt as the crises continues to unfold, it does not appear that Russia will be willing to bend any time soon. As we have stated in previous posts, the ongoing conflict may likely keep a floor under gold prices for the foreseeable future.
The non-farm payrolls data released on Friday looked great at first glance, but upon closer scrutiny the data is not as rosy as it seems. The labor force participation rate dropped to the lowest level seen since 1978. In addition, with many losing unemployment benefits, the amount of people not in the workforce climbed to a staggering 92 million people. The real situation in the jobs world remains very challenging. Fed Chairwoman Janet Yellen has even said that the jobs data does not reflect the true nature of employment conditions on the ground. Perhaps this is why the Fed has also said that discussion of rate hikes are premature at this point. The gold bulls may potentially be looking at this data and buying under the assumption that although the Fed is looking to get out of the QE business, we are still in an economic environment in which rates will remain low for some time.
The technical picture for gold is improving. Gold has broken above overhead trend resistance and is potentially poised for further upside. Near term support in gold remains in the $1280 area along with the even $1300 level. Upside resistance may be seen at the $1331.4 area.
As has been the case for a while, gold may move based on how equities are performing. Weaker stocks may potentially help give gold a boost, while equity strength may hinder the yellow metal.