Posted on May 30, 2014
The gold market has seen better weeks that’s for sure. The trading week in gold started like most other trading weeks in gold recently-that is to say the market didn’t do much. Tuesday, however, saw the gold bears finally take out previous key support in the $1280 area and drive gold to four month lows. Gold has been drifting lower ever since, and as of this post is down a few bucks per ounce again today going into the weekend.
The downside breach of support in gold this week really has not come as a surprise. The market has been essentially trading sideways for the better part of six weeks and had been coiling up into a very nice wedge pattern on the daily charts. It seemed that a breakout of the trading range was coming, but no one knew which way the gold market was gonna go. Well now we know…It would not be surprising at all to see gold bounce a bit here after the slide earlier this week, however, it does seem that the $1240 level is in the cards here in the near term.
Gold just continues to lack any type of real bullish catalyst. In the absence of such a catalyst, gold prices could continue to slide considerably, and potentially could see multi year lows in the coming weeks and months. If the $1200 level does not hold for a third time, gold could possibly see sub-$1000 prices again.
The situation in Ukraine continues to remain relatively quiet and thus the risk premium continues to be taken out of bullion. Unless there is a flare up in violence in the region or any new significant developments, gold will likely continue to take a back seat to risk assets. As we have stated, it seems that gold will likely stay under some degree of pressure as long as equities are making new highs. Although we can’t imagine this rally will last forever, no one knows for sure when the stock market will roll over. Until such time, investors may continue to choose risk and chase return which will likely continue to work against precious metals.
Dollar index strength is also proving to be a formidable obstacle for gold. As long as the greenback remains stronger, gold may have a tough time finding significant buying interest. The upcoming ECB meeting may potentially add fuel to the fire. If the ECB elects to take action with stimulus measures to counter deflationary risks, the dollar could rise even higher and potentially cause even more selling in gold and silver.