Gold is seeing further buying interest in early trade today following strong gains seen yesterday. Stocks are slightly lower this morning while the dollar and crude oil are also weaker.
This morning, markets got the latest reading on the Consumer Price Index which showed some increasing inflationary pressure. CPI came in at unchanged for the month of January while consensus estimates were looking for a modest decline. The core inflation reading, however, rose .3 percent versus consensus estimates of a .2 percent rise. Precious metals did not show too strong of a reaction to the data, and it could be considered a “mixed” driver for gold and silver. While these precious metals may potentially benefit from higher inflation, the Fed could also be more apt to hike rates further and faster in the face of accelerating inflation. Gold has likely benefited from recent “dovish” commentary about the pace of further interest rate hikes, but should the Fed elect to continue hiking rates at the pace previously discussed, it could eventually weigh on gold and silver.
As has been the case for some time, equity markets appear to be taking their cues today from the crude oil market. Oil is down today after seeing some decent gains in the past few sessions. It remains to be seen, however, if today’s decline is simply profit taking or if the oil market is rolling over once again. While crude bounces back from sub $30 levels on two recent occasions, another test of this level could potentially see a fresh leg lower in oil prices. Such a move would likely trigger another wave of selling in equity markets and could potentially drive buying in gold and silver as risk aversion increases.
Gold has largely recovered from a round of selling seen recently and could be gearing up for a retest of recent highs. Gold is likely being driven by overall risk aversion, a weaker dollar and changing interest rate expectations. A break above the recent highs could potentially set the stage for a test of the 1300 level and even beyond. While the bulls appear to be in technical control at this point, gold may see some volatility based on any changes in rate expectations, overall risk appetite and global economic news. Stocks appear to be at a critical point at which a rally will continue or the market may turn lower again. Lower stocks would likely be very supportive for gold as investors seek out alternatives.
