Gold prices moved lower this week as the Federal Reserve once again tapered its monthly bond purchases by another $10 billion per month. This move was not at all unexpected, and gold has been under a bit of pressure since. The reaction in gold prices has been fairly muted, however, as this development was likely already “baked into the cake.” Gold has a number of different factors pulling it into many different directions currently. On the one hand, the Fed winding down its bond purchases could be considered bearish for gold. As the Fed’s balance sheet ceases to expand, the dollar may continue to move higher and thus could weigh on gold prices. The dollar index is currently near a two month high, and is threatening to break out above key overhead resistance. This is something that many investors will likely be watching, as a strong rally in the greenback could drive down dollar denominated commodity prices such as gold and crude oil.
Gold seems to have gotten a bit of a boost recently from some safe-haven buying as investors become more and more jittery over emerging markets. Several central banks including the Turkish central bank and the central bank of South Africa have raised key interest rates this week in order to try and combat sliding currencies. It is not yet clear if the current situation in emerging markets will spiral into something more problematic, but many investors are cashing in some chips as the potential run on emerging markets unfolds. The uncertainty surrounding these markets has kept stocks on edge recently, and equities have had an interesting week with some wild swings and wide ranges in price. While many are calling a top in stocks currently, it remains too early to tell if equities will begin trending lower or if this is simply a needed correction before making new highs again. Gold investors will likely be paying attention, however, as should stocks start to falter further gold could see some rotation into it and other perceived safe-haven assets.
Demand for physical gold has remained fairly robust as buyers apparently see price dips as potentially good long-term buying opportunities. It is unlikely in our opinion that this physical demand will dry up anytime soon either. In addition, hopes for more buying from China and the notion of India relaxing some gold import restrictions has likely kept a bit of a floor under gold prices.
Gold traded in approximately a $40 per ounce range this week. The uptrend seen on the daily chart is now in danger of turning lower once again. If the lows of last week are breached, then gold could be setting up for more downside. The $1220 area still appears to be a key line in the sand for the gold bulls.
