Gold is lightly lower in early trade today as stocks and crude oil are flat while the dollar index moves slightly higher. A little downside in the yellow metal comes as no surprise at this point. Gold is trading at a multi-month high currently and some profit taking along with some back and fill price action is to be expected.
The dollar index is likely one of the drivers of action in the gold market currently. The greenback has been trending lower since the recent highs made in early August. Late August saw the dollar index dip all the way down to the $93 level before bouncing back to nearly $97. The dollar bulls, however, have failed to take prices back to the August highs. Much of the volatility seen in the dollar index in recent months could likely be attributed to speculation on the Fed and its plans with interest rates.
As more and more evidence has pointed to the central bank likely remaining on hold until sometime next year, the dollar bears have taken firm control of the market. The dollar index has slid significantly in recent weeks and is currently bouncing off of the $94 level which has acted as support on previous occasions. Whether or not the bulls can put together a sustainable rally remains to be seen.
A clean breakdown below the $94 level could, however, trigger more selling in the dollar and could potentially see prices begin another significant leg lower. Should this occur, the gold bulls may have more reason to buy and shorts may get squeezed further. The gold market could potentially see another significant run higher should the dollar weaken further.
Gold is in the process of clearing some significant technical resistance. Although a pullback may be seen from recent gains, the bulls may now be eyeing the $1200 level. From there, a break above the spring highs around $1234 could possibly set the stage for a quick run to the $1260 area.
Equities have continues to show more stability following severe volatility seen in recent months. This may actually be encouraging for the gold bulls, as gold is still being bought in spite of equities continuing to regain lost ground. The broad market SP500 will likely be running into some decent resistance not far from current levels, however, and should the stock market turn south once again it could potentially drive even more buying interest in gold and precious metals.
