Gold prices are trading flat to slightly lower here on Friday following yesterday’s huge move higher. Some consolidation today after the move yesterday would come as no surprise, however, given the current geopolitical landscape it would also not be at all surprising if more buyers came in to the market today ahead of the weekend.
Gold prices added nearly $50 per ounce yesterday while silver tacked on over $1.00. The gold bulls are clearly in the driver’s seat at this point, and it is quite likely that the move yesterday shook out a lot of the remaining shorts.
The ongoing civil war in Iraq is clearly playing a big role in gold’s current upside. This situation seems to continue to get worse and thus far there is no resolution within sight. It seems that a larger degree of risk aversi0n is beginning to enter markets, however, it is also interesting that the SP just continues to move higher. The positive correlation between gold and stocks yesterday is noteworthy. Should the crises continue to escalate, stocks could potentially come under pressure and start to sell-off. This could potentially boost gold and risk assets. It would seem unlikely though that stocks and gold continue to move higher together-possible but not likely.
The Iraq situation is also driving crude oil prices higher. Crude is approaching the $110 per barrel mark and should it breach this level on the upside, it could potentially get to $120 and beyond very quickly. Higher crude may also be an underlying bullish factor for gold and precious metals.
Following the FOMC announcement on Wednesday, Fed Chairwoman Janet Yellen held her press conference and seemed to indicate that although the Fed will likely continue to taper its bond purchases, interest rates are likely to stay low for the foreseeable future. Ms. Yellen indicated that the economy continues to require the Fed’s assistance to get on more solid footing. Gold investors perhaps saw this as an opportunity to buy, while gold shorts began to cover positions.
Gold sliced right through important resistance yesterday not only in the $1280 area but also the psychologically important $1300 level. The market will now likely see some decent support at the $1300 level. The next likely upside target for the gold bulls may be in the mid $1350s. A break above this level could potentially propel gold prices for a retest of $1400 in short order. At current levels, gold may begin to also see more fund inflows that will likely be very supportive for prices.
