Posted on September 22, 2014
Gold prices are trading slightly lower to begin the new trading week. Gold prices are currently at a nine month low, while silver prices are the lowest in four years. The combination of little new headlines, a significantly stronger dollar index, stronger stocks and the notion of higher rates seems to have been too much for the gold bulls to bear. In fact, gold would appear to be headed for a test of the $1200 level. As we have stated previously, this level is significant in that it has been tested twice and held. The third time down, it could break and further open the floodgates to more selling in the yellow metal. From a technical standpoint, should gold break $1200, then $1000 gold is certainly not out of the question.
Markets will have a fair amount of data to scrutinize this week. Today will bring the release of existing home sales data and there are two Fed officials speaking. Tomorrow will bring the PMI manufacturing index as well as the Richmond Fed manufacturing index. In addition, more Fed officials will be speaking. Wednesday will bring mortgage data as well as the latest readings on new home sales. Thursday will bring not only commentary from another Fed official, but also weekly jobless claims, durable goods orders, PMI services flash and the Kansas City Fed manufacturing index. Friday will round out the data week with the latest readings on second quarter GDP and consumer sentiment.
Sentiment surrounding the gold market is appearing to get overly bearish at this point. While gold has not been able to put together any type of meaningful rally in recent months, the market has become oversold and may experience a counter-trend rally at some point. It seems unlikely that gold continues to move straight down from here but anything is possible. Given the current lack of any type of significant bullish catalyst, however, gold will likely remain a seller’s market for the foreseeable future.
At this point, it may take some significant geopolitical event or events to put a significant bid into gold prices. Stock weakness could potentially drive the gold bulls as well, but currently the stock market seems poised for more upside and it would likely take a fair amount of weakness to convince investors the run is over. On the other hand, the market could potentially be more vulnerable to a crash at this point, and many have made strong arguments as to why this is possible. In addition, a reversal in the dollar could potentially help the gold bulls, although that may be unlikely given the situation being seen in the Euro zone.