Posted on July 11, 2014
Gold prices are trading slightly lower as of this post to cap off a good trading week for the yellow metal. Since dipping back down to the $1310 level last Friday, the metal has moved higher this week while posting higher lows in the process. From a technical perspective, this would certainly appear to be a good thing. Gold appears to be in “buy the dips” mode now, and a break above former resistance in the $1331 area has confirmed some current market strength.
Gold seems to have several things working in its favor currently. Yesterday, Portuguese yields shot up on concerns about the country’s banking system. While the PM attempts to soothe investors and says that the banking system is sound and can absorb any losses, the notion of trouble in the banking system brought back memories for investors of the European debt crises-and needless to say those thoughts were not pleasant. Stocks opened sharply lower on the news, and gold and silver both caught a nice bid. Stocks largely recovered during the session, and gold put in a solid close albeit off the highs. In addition to the new worries over Portugal and its banks, markets are still dealing with several other geopolitical influences right now. These include Israel, Ukraine and Iraq. Although this week seemed a bit more quiet on these fronts, these issues do not appear to be going away anytime soon. This may potentially keep a floor under gold and perceived safe-haven assets.
The stock market is also coming under more scrutiny as many are now wondering if the market has “topped.” While it is far too early to tell, there do appear to be some warning signs. The current dip stocks are seeing may be a good test. If the dip is bought, then stocks may continue higher. If the dip is not bought, then we could potentially see a decent slide in equities.
Of note to gold investors also is some strength being seen in mining stocks. These mining stocks have a tendency to lead the gold market. While nothing is ever set in stone, this could be an indication that the potential for gold gaining more momentum and starting to really trend higher is a real possibility. Should stocks begin to really falter or if geopolitical tensions escalate, gold may potentially benefit from reallocation of risk and assets. Next possible upside target for the gold bulls is in the $1354 area. A breach above this and $1400 gold becomes a very distinct possibility.