Gold is trading moderately higher this morning and has climbed back above previous resistance at the $1170 area. Stocks are sharply higher again to begin the trading day while crude oil is moving lower. The dollar index is also catching a bid in early action today.
Overnight, China lowered its lending and deposit rates by .25 percent. China has been a source of concern for some time now, and any steps taken by Beijing to boost economic growth are likely to drive stock buying and risk appetite. While economic troubles in China have taken a backseat to the Fed and its plans regarding interest rates, the world’s second largest economy will likely play a key role in overall investor sentiment for the foreseeable future.
In other stimulus news, ECB President Mario Draghi held a press conference yesterday following the central bank’s monetary policy meeting. The ECB did not take action at this meeting, however, Mr. Draghi gave strong indications that the ECB could act in the near future. The region is still dealing with slow economic growth and deflationary pressures and yesterday’s press conference seemed to make it pretty clear that the ECB is not afraid to throw additional stimulus at the problem.
The ECB Chief’s comments spurred heavy selling in the euro currency and gave a boost to the dollar index. While the idea of stimulus can be bullish for gold, a stronger dollar index cold also potentially weigh on the yellow metal.
In addition, equities are rallying over the idea of more stimulus, and stronger stocks may potentially keep a lid on gains in gold and precious metals.
With other countries are still using stimulus measures to boost economic growth, interest in what the Fed will do next week or in the coming months is likely to increase. While a rate hike by the central bank at next week’s meeting may seem unlikely, anything is possible. Some are of the opinion that if the FOMC does not hike next week, a hike will not likely be seen until sometime in 2016.
Speculation about what the Fed may or may not do may keep markets in a state of limbo. While the bulls still appear to have the edge right now in the gold market, the market may see some sideways trade as investors await next week’s FOMC announcement.
The action taken by China, as well as the possibility of more stimulus by the ECB, may keep the Fed on hold for now and could potentially drive both gold and equities higher.
