Gold prices are moving lower today as stocks and the dollar index are both moving higher while crude oil prices are lower on the day. As of this post, gold is trading below former support in the $1180 area. A close below this level today may potentially set the stage for further selling pressure next week.
Gold is seeing some follow through today after large selling in the yellow metal yesterday. Investors have now had a chance to consider the commentary from Wednesday’s FOMC meeting announcement, and the bulls apparently do not see much to cheer about.
Adding to selling pressure in gold is the likely exit by bulls as sell stops lining the downside have been triggered. While the fundamentals of the gold market appear to be lacking any bullish catalyst at this point, technical trade has been a large driver of recent price action.
Of note to the gold market is recent price action in the Euro currency. The euro has moved sharply higher in recent trade, while the dollar has seen limited upside interest. Following a reshuffling of its negotiating team, it appears that Greece may yet be bale to hammer out a deal with the EU and creditors. Greek bond yields have recently come off a bit from recent highs in what could be a sign of optimism. The euro has gained some traction on recent developments in these talks, and a large scale short squeeze in the currency is possible.
While a stronger euro/weaker dollar may potentially work to gold’s benefit, should a deal be reached to keep the country in the EU it may at the same time deflate any possible risk aversion among market participants. The lack of risk aversion and any ongoing strength in equities and other risk assets may keep any upside in gold limited, and may in fact send the price of gold on a fresh leg lower.
Sustained trade below the $1180 area may set the stage for another test of $1140 in gold. A clean break below this level could potentially see prices fall back towards $1000 per ounce, or even lower.
While gold prices have apparently gotten comfortable around the $1200 level, it may only be a matter of time before a more decisive directional move is made. That potential move may very well happen sooner rather than later.
In the meantime, the precious metals markets will continue to pay attention to any remarks from the Fed as markets look for ongoing guidance regarding interest rates.
