Gold prices are weaker once again today as lack of fresh inputs and technical selling take their toll. The $1080 area remains key for gold in the near-term, as a breach below may suggest further downside is ahead. A break of this five year low would potentially spur more selling in the market, and a significant move lower cannot be ruled out.
Lower crude oil and a stronger dollar index continue to exert negative forces on the gold market. Crude has broken below the $40 per barrel level, a level that had been previously defended. This breach lower could potentially see a quick move in oil prices down to $40 per barrel or even lower.
The dollar index, while giving up some ground this week, has been making higher lows and appears to be headed for a return to its recent highs. A break above last week’s high could potentially set the stage for a move to the $100 level on the index, and may weigh further on gold and silver in the process.
China released its latest PMI index data which is clearly a cause for concern. The 48.2 reading for July is a 15 month low, and may add to ongoing concerns over China’s economic growth and markets.
Gold may continue to see pressure until there is more certainty surrounding the Federal reserve and its plans regarding interest rates. The gold market may be pricing in a more aggressive rise in rates, and could regain some strength once the initial rate hike has been implemented. In addition, the dollar could potentially find a top once a clearer path has been laid out by the Fed.
All things considered, economic data in the U.S. is showing signs of strength. This strength may keep stocks under some firm footing for the time being, and may potentially keep a lid on perceived safe haven assets, such as gold.
There are some kinks in the armor, however. If volatility in China begins to pick up again, gold could potentially stand to benefit. In addition, if Chinese data shows further weakness, it could potentially ignite a larger scale sell off in the U.S. and elsewhere.
Gold remains quite oversold on a short-term basis, and could see a short covering rally any day now. Any significant rallies in gold will likely be sold into, however, as the path of least resistance remains lower.
A break below the $1080 level could possibly see prices targeting sub-$1000 levels in the coming weeks or months.
