Gold prices are moving decidedly higher this morning as the yellow metal trades at multi-week highs. The technical picture for gold has improved significantly in recent trade, however, the bulls will likely face some challenges ahead.
The gold market is likely seeing renewed buying interest as the likelihood of a rate increase by the Fed this year has diminished. The policy doves appear to be clearly concerned over ongoing economic troubles in other parts of the world, with China being a particular area of concern. Concerns over China and other economies have stoked volatility recently in equity markets, although, stocks have rebounded significantly and are moving higher again today.
It is worth noting that gold has looked strong in recent trade even as stocks have come roaring back. In fact, the broad market SP 500 has come back almost 150 handles in the last several sessions. While many might assume that recent downbeat economic data and ongoing concerns over China would drive equity markets even lower, markets have a funny way of doing the opposite of what the majority thinks they will do. In this case, as many have become more and more bearish, it would not be surprising to see stocks continue to roar back to the upside — especially given the fact that the Fed may now be on hold until next year.
This then begs the question: Will the gold bulls be able to maintain recent upside momentum if stocks continue to climb? The answer to that question remains to be seen, however, recent strength seen in gold is certainly a source of encouragement for the bullish camp.
Also currently working in gold’s favor is higher crude oil prices and a weaker dollar index. Oil is once again flirting with the $50 per barrel level while the dollar index has begun trending lower. The dollar bears have gained some momentum in recent days and further downside in the greenback is a possibility. Higher oil and a lower dollar may potentially add fuel to the fire for the gold bulls.
The highs seen around the $1170 area in late August could be a possible target for the bulls in the short-term. This level may be met with some significant resistance and will provide a good test for the bulls. A breakout above this level could attract further fresh buying interest as shorts continue to get squeezed and could potentially set the stage for another significant leg higher in gold.
