The gold market is ending the trading week with a bang, as prices are sharply higher today and are close to challenging the most recent swing high. Gold is within striking distance of hitting the $1287ish high seen in early March, and a solid close above this level could potentially fuel more buying interest.
Gold is higher today as a degree of risk aversion has set into global markets. The tech sector was hit in recent trade as shares of Apple have been a drag as the company missed on its latest earnings announcement. Billionaire investor Carl Icahn also reportedly sold his entire holdings in Apple, citing worries over the company’s ability to grow sales in China.
While the broad market SP500 has been flirting with previous all time highs, the market is now showing some potential signs of cracking. While the strength seen in gold in recent weeks has been impressive given the move higher in equities, a stock market selloff could potentially be a powerful bullish catalyst for the gold market.
Adding to investor anxiety is the lack of additional action this week by the Bank of Japan. While many expected that the BOJ would move further into negative interest rate territory, the central bank held off and as a result the yen saw a significant spike higher. Left to its own devices, the yen could potentially move significantly higher from current levels and one has to wonder if or when the BOJ will step in to halt the currency’s ascent.
A major breakdown in the U.S. Dollar could be seen in the near future. The dollar index is quickly approaching a key chart level and a failure of this level could potentially ignite fresh selling that may result in a significant leg lower in the index. This could potentially be another major bullish catalyst for gold, silver and other dollar denominated commodities.
Investors will likely continue to pay close attention to the Fed and any commentary from the central bank regarding interest rates. While additional rate hikes from the Fed may be considered a bearish element for precious metals, it would seem that gold investors are comfortable in the idea that the pace and timing of further hikes is likely to remain very gradual. It is difficult to imagine the Fed being more aggressive with rates as China, the ECB and other nations continue with ongoing stimulus efforts to boost their struggling economies.