Posted on May 09, 2014
Gold prices are catching a slight bid here on Friday morning as worries over potential developments in Ukraine over the weekend cause some fresh buying and shorts cover some positions ahead of the weekend. In addition, stocks are seeing some weakness this morning to begin the trading day, and this is also likely contributing to gold’s early but limited upside.
One of the key potential drivers for gold and silver right now is currencies. Yesterday, the ECB kept rates unchanged and while the Euro was initially higher, it eventually reversed course and headed South-and is under pressure again today. It is widely expected that the ECB may undertake stimulus measures in order to boost their economy and also attempt to weaken the Euro currency. Conversely, the dollar index reversed course as well and is seeing follow through buying today. In fact, the DX is approaching the key $80 level-and an upside breach of this level could prove to be a formidable obstacle for the gold bulls. Of course, everyone will have to wait and see if the ECB does in fact take action, but as of this post it seems that the Euro and Dollar are in the midst of significant reversals and this could prove noteworthy for bullion investors.
The situation in Ukraine will also continue to play a large role in gold’s fortunes-or lack thereof. At times it has seemed as if Russian leadership may be wanting to extend an olive branch while at other times it seems that a further escalation in Ukraine is quite likely. This situation may continue to drag on for some time, and gold prices may see some support because of it. One has to wonder, however, if gold could be poised for a large slide if the situation deescalates at some point. The economy continues to show signs of improvement, and the Fed plans on staying the course with removing its stimulus. It is somewhat difficult at this point to make a strong bullish case for gold as long as stocks keep moving higher.
The gold bulls are showing some signs of life today but are definitely on their heels. The bulls must retake the $1300 level quickly, or a slide below recent support in the $1280 area becomes a good possibility. Gold fell back below the $1300 mark this week following commentary by Fed Chairwoman Janet Yellen. Gold prices have been relatively range bound from $1280 support to the $1330 area-and could potentially maintain this range until there is more clarity in Ukraine or more significant moves in the currency markets.