Posted on January 23, 2015
Gold prices are moving a bit lower this morning as some profit taking enters the market. Yesterday, gold prices moved above the psychologically important $1300 level only to fade a bit throughout the day. While the metal did close above this key level-barely-it did not make a very convincing run beyond $1300, at least not yet.
Right now, the biggest story affecting the gold market is the strength being seen in the U.S. dollar index. The index has hit twelve year highs, and thus far is not showing any real signs of slowing down. Dollar strength makes commodities, like gold and silver, relatively more expensive for foreign investors as they are priced in U.S. dollars.
The euro currency continues to move lower and is at its lowest level in over a decade. Like the dollar, the shared currency is not showing any signs of reversing course, and more downside could be in the cards. The ECB this week announced a QE package to the tune of 60 billion euros per month. The bank appears to be using more heavy artillery now as it tries to stem deflation in the region. Although the package announced is significant, many are still questioning whether or not it will be enough to turn the Euro zone economy around.
Speaking of the Euro zone, some are now also questioning whether the Fed will hike interest rates given the troubles being seen in the EU. While it seems unlikely, it is certainly possible that the Fed decides to hold off. Although higher interest rates appear to be priced into gold now, should the Fed decide to wait it could potentially be another bullish factor for gold.
In other EU related news, the elections in Greece will be held this weekend. The outcome of these elections could determine if the country remains a part of the union or not. While the country leaving does not appear likely, it is a distinct possibility. There does not appear to be a great deal of concern in markets today, however, as stocks are slightly lower and gold is falling as well.
Gold has taken on a significantly more bullish posture in recent weeks. This could be attributed to a number of things such as risk aversion and asset reallocation. The gold market has broken through some significant areas of resistance, and appears for more upside. A clean break above the $1300 level is the next order of business for the gold bulls. Beyond that level, the market could potentially rise to $1320 and then $1340. Given recent strength in gold, some back and fill trade is likely before seeing another potential leg higher.