The gold market if flat to slightly lower this morning in early trade as stocks rally, oil moves higher and the dollar index declines. Overall, there appears to be a strong appetite for risk in the marketplace this morning which may detract from interest in precious metals going into the weekend.
As has been the case for some time now, equity markets are likely seeing a strong influence from price action in crude oil. Oil is up over $2 per barrel this morning and is once again approaching the $40 per barrel level. Whether or not black gold can continue higher remains to be seen as the ongoing supply glut still likely needs to be dented before any substantial price increases.
After seemingly getting precariously close to rolling over, the gold market appears to have once again found willing buyers and could potentially be gearing up for a run at the recent highs. While gold’s fortunes can turn on a dime, the yellow metal has a lot of things working in its favor.
Recent dollar weakness may be very supportive for the metal, and the dollar index is in a solid downtrend. Further weakness in the greenback could potentially fuel another round of fresh buying in gold. Gold has seen a relatively small trading range this week which could be indicative of consolidation before another significant move.
Following last week’s non-farm payrolls data, investors continue to look for additional clues from the Fed as to the timing and pace of further rate hikes. While the central bank has maintained its “data dependent” stance on further hikes, strength in the labor market and other areas of the economy could potentially motivate the Fed to raise rates once again in June. That being said, the central bank is likely to tread very carefully as raising rates too far too fast could potentially stop growth in its tracks and send investors running for the exit signs.
Stocks remain not far from previous all-time highs, and a test of those previous highs could potentially be in store. As long as stocks remain strong, gold could potentially have a difficult time making any further significant headway. On the other hand, if stocks fail and roll over, gold could potentially see significant fresh buying and prices could rise substantially from current levels.
The ongoing divergence between U.S. monetary policy and other areas of the world such as China and the ECB could potentially cause volatility in global currency markets, interest rates and other instruments. Increasing volatility could be one more issue that has the potential to drive buying in gold and other perceived safe haven assets.
