Posted on February 28, 2015
Gold prices are slightly lower this morning as stocks and the dollar index drift lower as well. While a lower dollar and lower stocks may be considered bullish for gold, the yellow metal appears content around current price levels, and has thus far seen a very small trading range. This being the last trading day of the month, it is worth noting that gold is not on the low of the month but it is not far from it either. The market briefly broke below the $1200 mark earlier this week, but reversed course quickly. The question now becomes whether or not the gold bulls can put a rally together here or if another leg lower may be in store.
This morning saw the release of fourth quarter GDP data. The economy grew at a rate of 2.2 percent, below the initial estimate of 2.6 percent but slightly higher than the consensus estimates of 2.1 percent. Markets did not appear to have much reaction to the data.
Also of note this week was the latest reading on CPI. The Consumer Price Index showed an inflation rate of -.7 percent month-over-month and -.2 percent year-over-year. The downtrend in headline CPI can be largely attributed to lower energy prices. While the Fed may still hike interest rates in spite of low inflation, this is something to keep in mind. It is unlikely that rates will rise much with inflation below target levels.
While the bears may be in control currently, gold does have a number of issues that may lend the metal some degree of support. While investors seem to be breathing easier following a four month Greek bailout extension, this issue will come to roost once again before markets know it. Unless significant progress is made between Greece and the EU during this period, the possibility of a Greek exit from the EU would appear to increase. While it is not known how an exit would affect global financial markets, there does exist the possibility of a number of negative consequences.
In addition to Greece, Russia may continue to be a source of tension and any escalation seen in Ukraine has the potential to affect global markets. While this conflict seems to have taken a backseat in recent months, the violence unfortunately continues and tensions between Russia and the West may grow.
These issues, along with concerns over global growth, may keep gold from falling much further. The gold market may see support in the $1180 area followed by the $1140 area. A decisive break below the $1140 level could potentially set the stage for a test of $1000.