After skyrocketing higher yesterday to the highest level seen in a year, gold is seeing a slight pullback today as some profit taking is likely taking place. Stocks are sharply higher this morning as crude oil rises while the dollar index is also stronger in early trade.
As has been the case for the last several weeks now, stock investors appear to be cheering on higher crude oil prices today. Oil is up over $2.50 per barrel at $28.79 and could potentially attempt to climb back above the $30 level. Investor risk appetite has ebbed and flowed with the rising and falling tides of the crude oil market and any strength seen in oil could potentially fuel further buying in equities. There are some whisperings of a production cut by OPEC that could be driving short covering and some fresh buying in oil today.
Given the fact that the U.S. is headed into a three day holiday weekend, stocks and risk assets could potentially see some selling as the session progresses.
Markets certainly have a number of issues to contend with right now that could continue to weigh on risk appetite and overall investor sentiment. While China remains a large area of concern, Japan is also seeing pressure in its markets and may need to consider additional stimulus measures after it just implemented a negative interest rate policy. After falling sharply on the news, the Japanese Yen has risen sharply this week as investors flock to its perceived safety. The rising yen, however, poses some serious problems for Japan and further action may be seen by the Bank of Japan.
Fed Chairwoman Janet Yellen this week discussed monetary policy and reiterated that the Fed is not in automatic tightening mode. While the question of whether or not the Fed would hike rates four times this year had been debated, her recent commentary is fueling further debate about the potential pace and timing of additional rate hikes. Some analysts now even feel that another rate hike will not be seen this year. Changing economic conditions and ongoing worries over China, emerging markets and deflation have caused a dramatic shift in rate expectations. This could be a huge factor in gold’s recent rally and the extremely strong showing in gold yesterday.
In addition, gold may have shorts still unwinding positions as more fresh buying enters the market. The bulls are now in firm technical control and for now the path of least resistance would appear to remain higher.
