Posted on November 28, 2014
Gold prices are getting slapped this morning in light post-holiday trade. As of this post, the price of gold is down over $17 per ounce. The apparent catalyst for this large drop today is sharply lower crude oil prices.
Yesterday, OPEC decided to leave production quotas unchanged. Many called this the most important OPEC meeting in many years, and it was unclear if the group would take action to try to stop the fall in crude oil prices. It would seem that the group wants to tackle competition here in the U.S. and from other producers as well, and that they have decided to try to wait out lower prices. The fact is that if the group had reduced its daily production quota, it would likely lose market share as producers in the U.S. and elsewhere simply pick up the slack. One could take the view that the group is willing to endure short term pain for long term gain.
Commodities are lower pretty much across the board this morning. Gold, silver and even copper are all trading significantly lower along with oil prices which have broken below the $7o per barrel mark. One has to wonder just how low oil may go before the selling subsides, and prices in the $60-$65 per barrel range are certainly a possibility.
Should oil prices continue to slide, gold and precious metals may stay under pressure. Gold is currently trading below a previous support level in the $1183 area, and a retest of the recent lows in the $1130 area cannot be ruled out. Should these recent lows be taken out by the bears, the price of gold could potentially head towards the $1000 per ounce level.
The dollar index is sharply higher today as commodities are sold off. Dollar strength continues to weigh on gold prices and likely will continue to do so for the foreseeable future. This is not to say that gold cannot rally with a higher dollar, but a stronger greenback may make it considerably more difficult for the gold bulls.
Stocks are not doing much today following the OPEC news. Higher stocks also continue to weigh on gold prices, and may continue to do so as long as markets are making new all time highs. While the rally in stocks may not go on forever, any rallies in gold may be somewhat limited as long as equities are moving higher. The recent downside in oil may cause some apprehension among investors. While everyone wants lower energy prices and to pay less at the pump, the slide seen in crude could also be considered destabilizing. Lower crude oil can have both positive effects and potentially negative effects. While anything is possible, it seems likely that the oil market is close to finding a degree of equilibrium. Should that prove to be the case, perhaps gold and precious metals will once again find support.