Posted on August 10, 2015
Gold is moving higher this morning as stocks are significantly stronger and crude oil rises. The dollar is seeing some weakness today, and some are attributing today’s market action to comments made by Federal Reserve Vice-Chairman Stanley Fischer.
Mr. Fischer suggested that a September rate hike by the central bank is not a done deal. He cited the fact that the employment situation is improving while inflation remains benign. Low inflation clearly remains a source of concern for the Fed. Perhaps Mr. Fischer was simply trying to reiterate the fact that the central bank has five weeks worth of data to scrutinize before possibly hiking rates.
Mr. Fischer is viewed as a powerful number-two behind Federal Reserve Chairwoman Janet Yellen and his remarks are clearly being taken very seriously.
What this may indicate is that any decision on rates next month will likely be a last-minute decision. While last week’s non-farm payrolls data seemingly pointed to a September rate hike, the Fed may leave all options on the table.
This dovish commentary sent investors into risk assets, as well as gold and silver, while the dollar lost ground.
Recent CFTC data pointed to some short covering in the gold market, although a large net short position remains. Short covering has not yet been seen on a large scale and should more shorts begin to cover positions, it could potentially fuel a significant rally. Despite today’s dovish commentary by Mr. Fischer, sentiment surrounding the gold market remains quite bearish.
The gold market may also be seeing some benefit today from hopes of further stimulus measures in China, the world’s second largest economy and a massive consumer of raw commodities. Recent data coming out of China has been below expectations and some analysts believe that Beijing will introduce further stimulus measures in order to boost its economy.
While gold remains vulnerable to a significant short covering rally, the market still appears to be lacking any significant bullish catalyst. With Chinese markets currently calmer and with Greece fading in the headlines, risk appetite may remain elevated.
While gold could potentially rally $100 per ounce or more on short covering alone, any large-scale rallies in the market will likely be sold into until proven otherwise. The notion of rising rates, along with higher stocks and weaker oil, may keep a lid on any potential upside.
From a technical perspective, gold will likely remain on the defensive unless a move above the $1130 area is seen.