Posted on May 16, 2014
Gold prices are flat to slightly lower here on Friday to wind down the trading week. The yellow metal has seen a bit more volatility this week, although it continues to stay within a fairly limited range price wise. The metal has once again held support in the $1280 area, and likely caught a few bears on the wrong side of a failed downside breakdown below this level. The market has since flirted around the $1300 level, and thus far has not been able to make a clean upside breakaway from this price level. Gold clearly has several different things pulling the strings right now, and the market appears to be coiling up for what could prove to be a significant move-no one knows in what direction that may be however.
All things being equal, US economic data continues to show an improving economic backdrop. While the data has seen some rough patches here and there, it seems likely that the Fed will hold its current course of removing QE and holding rates low for the foreseeable future. The notion of low rates being here for some time to come may help explain the ongoing rally to record highs in stocks. It does continue to seem that as long as equities are moving higher, gold and precious metals may have a competitive disadvantage. We shall see. The gold bears have thus far not been able to push gold to another leg lower even with stocks moving higher-and therefore it is possible that gold could stay relatively range bound or start to rally if signs of trouble in equities begin to emerge.
Speaking of signs of trouble in stocks, there has been a lot of chatter recently about how bonds and notes have rallied and rates are at multi-month lows. Many believe this could be a foreboding sign. The question then becomes, who is right; The bond market or the equity markets? Obviously time will tell, but this is something that should not be ignored. Perhaps stocks are approaching the end of the line.. We shall see….
Gold investors will continue to pay close attention to the stock market and interest rates as well as the ongoing situation in Ukraine. Many feel that escalation in Ukraine, or a correction in stocks could potentially send gold higher. Also of note is the recent reversal in the dollar and the Euro, however. The dollar has been moving higher and has reclaimed the $80 level. Further dollar strength could potentially limit the upside in gold. We do feel, however, that given some of these other factors the downside in gold may be limited as well. Obviously,we will see a break eventually one way or the other. That break may be coming sooner rather than later.