Posted on May 23, 2014
The gold market has once again seen a relatively quiet week. Gold prices are currently trading flat to slightly lower going into the long Memorial Day Holiday weekend. It would appear that most investors have started the long weekend early and are perhaps content with their current positions. We could possibly see some safe-haven buying in gold as the day goes on, however, as uncertainty surrounding Ukraine continues. In addition, shorts may elect to cover positions in order to try and avoid weekend headline risk.
There are numerous things that the gold market is trying to take into account currently. Obviously, the situation in Ukraine remains a big potential catalyst for a gold rally or even a gold sell-off. Although the situation has thus far stayed somewhat calm, that could change quickly. Investors continue to appear relatively unfazed by the crises, however, and demand for risk has stayed fairly high. Should a peaceful and diplomatic solution be found, it could potentially trigger a sell-off in gold that would lead to a new leg lower in prices. Obviously, should the crises escalate, then gold could potentially benefit from flight-to-safety buying and asset allocation re-balancing.
In addition to Ukraine, markets continue to closely monitor the economic data as well as any commentary from Fed officials. This past week, the FOMC minutes appeared to show that the Fed is not concerned about inflation at this point. In addition, the Fed spoke of providing greater clarity to markets in terms of forward guidance and also has made it pretty clear that they need to begin really discussing an exit strategy. The FOMC minutes along with some recent commentary by Fed officials has been perceived to be more in the hawkish camp when it comes to future policy. This could potentially weigh on gold prices.
Stocks continue their winning ways for the most part, and until a full blown correction comes, gold and precious metals may continue to be put on the back burner. While there has been some increasing chatter about the likelihood of a correction, the market is always right and the path of least resistance for stocks still remains higher.
Gold has been in the process of forming a classic wedge pattern on the daily chart. The market has been coiling up for some time now, and this could potentially indicate a large move on the horizon. Which way this move will come, no one knows, but it could be sizable. While there are no guarantees, it would seem that a breakout or breakdown could be seen in the very near future.