Gold prices are slightly stronger today to begin the new trading week. The gold market may simply be seeing some short covering prior to the FOMC statement due out on Thursday. Stocks and crude oil are working their way lower today, while the dollar index remains near the unchanged line.
Although investors will have plenty to chew on this week, markets may potentially remain somewhat subdued going into Thursday’s Fed announcement and subsequent press conference. Investors will get the latest readings on retail sales, Empire State Manufacturing, CPI, the Housing Market Index, housing starts, weekly jobless claims and leading indicators.
While things may be quiet going into the Fed announcement, markets could potentially see increasing volatility after the FOMC meeting concludes. Besides the Fed announcement and other data set for release this week, it is also quadruple witching week.
While debate continues about the Fed’s possible plans, it would seem that the central bank may hold off on hiking rates for the first time in several years until December or perhaps beyond. Should the Fed indicate that it intends to hold off, a rally could potentially be seen in precious metals, as well as risk assets.
Gold has been trading sideways in recent action, apparently biding its time ahead of the decision on interest rates. While a knee jerk rally could possibly be seen if no action is taken by the central bank, the question of whether or not such a rally is sustainable is another matter entirely. The recent high in gold seen a few weeks ago in the $1170 area may be a tough level to crack for the bulls. Gold remains in a technically weak posture and the path of least resistance remains lower. That being said, however, gold’s fortunes in the coming months could also potentially depend on the state of global equity markets. Gold was bought recently while some shorts covered as concerns over the Chinese economy took a toll on stock markets. These concerns over the slowdown being seen in China, as well as other emerging markets, are not likely to go away anytime in the near future.
Should stock market volatility begin to climb once again, gold and precious metals could potentially benefit as risk aversion once again takes hold. While the notion of higher rates may be considered bearish for gold, it may also potentially weigh on stocks. Should stocks begin to accelerate to the downside, gold may find renewed interest as investors seek out alternative asset classes to put capital to work in.
