Posted on July 18, 2014
Gold prices are selling off modestly as of this post. Gold is down about $10 per ounce while stocks are moving higher. Kind of a familiar theme-higher stocks and lower gold… The gold market appears to be just doing some back and filling following yesterday’s pop higher.
This past week from a data perspective has been somewhat quiet. Markets did, however, see some movement based on comments Fed Chairwoman Janet Yellen made before the Senate banking Committee on Tuesday. In her comments, Ms. Yellen made it clear once again that the economy still requires the Fed’s assistance. In addition, Ms. Yellen seemed to downplay the risk of inflation, which caused gold prices to come under pressure once again following the big sell-off seen in Monday’s action.
Unfortunately for the world, the recent calm seen in the past couple of weeks has come and gone-and one could say perhaps it was the calm before the storm. Yesterday, a Malaysian jetliner was shot down by a surface-to-air missile over Ukraine near the Russian border. Markets reacted swiftly and severely, with stocks dropping rapidly and the price of gold, oil and some other commodities spiking as a result. This tragic incident has brought back to the forefront the current geopolitical landscape that the world finds itself dealing with. Fighting in Ukraine has picked up recently, and there are no signs of a peaceful resolution being found anytime soon. The U.S. and some European allies this week slapped the harshest sanctions on Russia yet-and Russia has said that they may retaliate. These sanctions will hit Russian business interests hard, as it will not allow some of the countries biggest business players access to financing and U.S. capital markets.
As if the current conflict with Russia is not enough, Israel this week launched a ground offensive against Hamas in the Gaza strip. And let’s not forget the civil war going on in Iraq. Although stocks are recovering some today, it seems that the notion of risk-aversion may be gaining traction. Although gold is trading lower today, it also seems unlikely that gold prices would fall significantly given the current state of world affairs.
Speaking of stocks, some are at this point calling a top in the equities markets. Of course, there have been people calling tops for some time now as the market continues climbing. It seems that it would be difficult for stocks to keep moving higher given everything that is going on, but this bull market has proven to be extremely resilient. For now, it would not be surprising to see gold begin to climb again, and the market may find a nice floor underneath prices given current tensions.