Posted on November 13, 2015
Gold prices are trading near the unchanged mark today as stocks move lower, crude oil sinks and the dollar index rises. Dollar strength today is likely a contributing factor to oil’s weakness and could potentially weigh on gold throughout the session.
Gold has been under pressure since the last FOMC meeting and closed at a multiyear low earlier this week. The market could potentially see additional selling pressure in the weeks ahead as the Fed prepares to initiate lift-off. The central bank seemed to give a very good clue at its last meeting that rates would likely go up in December. The necessity of such a move remains debatable, however, and there is still the possibility of the Fed electing to hold off until next year.
The central bank appeared to send a shot over the bow to financial markets, however, in language released following its last meeting. Stocks have since seen some pressure, as well as the notion of higher rates sinks in further.
Concerns over deflation have arisen again as crude oil continues to fall and other commodity prices decline. While the current cycle in commodities could potentially be entering its last phase, more downside pressure in commodities may keep investors anxious and could also potentially keep the Fed on hold.
In addition to falling commodity prices, ongoing concerns over China, the EU and other emerging markets must also be considered. The Fed does find itself facing an interesting conundrum as it prepares to hike rates while other economies are holding rates at very low levels or are engaged in various forms of quantitative easing.
For the gold bulls, however, the writing is on the wall. It would seem that gold may see another “washout” leg lower when rates do in fact rise. Once that washout is complete, however, the bulls may be able to get to work on building a long-term base from which prices may rise.
$1000 per ounce gold is certainly a possibility at this point. This level could, however, potentially represent a longer-term bottom in the market and could potentially provide a good long-term entry level.
For the gold bulls, it may get worse before it gets better. Once all the dust clears, however, gold may see renewed buying interest at what may be perceived to be relatively low prices. For the time being, gold will likely be driven by action in global equity markets, economic data and action or commentary from the Fed.