Posted on January 22, 2016
Gold prices are slightly higher this morning as the bulls attempt to hold the $1100 per ounce level. Stocks are moving sharply higher this morning as another pop in oil prices is being seen with crude oil moving firmly back above the $30 per barrel mark. The dollar index higher this morning, as well.
It’s all about risk appetite…
Gold has seen some signs of life recently as risk aversion set in. Global equity markets are very focused on Chinese markets, as well as crude oil currently, and any buying seen in those areas has the effect of driving some risk appetite. While crude oil may be seeing a bit of a rebound today, the selling may not have yet run its course. Buying seen in oil today may be largely attributed to short covering and the market is susceptible to another leg lower in prices.
Global stock markets were higher last night and U.S. markets are following in those steps today. This comes as no real surprise, however, as markets had become very oversold on a short-term basis. Like crude oil today, there may be a fair amount of short covering taking place helping to fuel the rally in equities today. The question is will the rally last.
Possibly also helping risk appetite today, the ECB this week alluded to additional stimulus measures to be set in place in the near future. In addition, there is always the possibility of China taking further steps to bolster its economy, as well.
Gold is hanging in there today in spite of higher stocks and a stronger dollar index. This could potentially be viewed as a sign of underlying strength in the market. While gold has staged an upside breakout in recent trade from its previous range, the bulls have yet to put any significant distance between current prices and the top of the previous range. The market will likely tip its hand sooner rather than later, however, and either gold will begin climbing or will simply fizzle back into the previous range.
While gold is taking some cues from global equity markets, oil and overall risk appetite, precious metals investors may also be waiting for further clues from the Fed about the pace and timing of additional rate hikes. This could potentially keep any rallies or selling in gold somewhat limited. In the meantime, gold will likely be driven by risk appetite or aversion.