Gold prices are slightly higher to begin trade Friday morning as investors await a speech on the labor market by Fed Chairwoman Janet Yellen. Gold has had a tough weak, and although it is trading in the green so far today one cannot deny that the market looks weak. The gold bulls have not been able to put together any type of meaningful rally, and the market has once again lost its grip on the psychologically important $1300. level. The market has slid further this time down into some additional support in the $1280 area. Should the gold bears be able to take this level out, we could see $1240 gold in a hurry.
The FOMC minutes earlier this week did not help the gold bulls. The minutes outlined an improving labor market, although there was some disagreement on the issue. The Fed also reiterated its intentions on pulling back on stimulus, and many feel that we could see the first rate hike sometime in the middle of next year. The minutes did have more of a hawkish tone, however, and some believe that a rate hike could potentially come sooner than expected.
The stock market continues its ascent higher as seemingly more and more professionals sound the overbought alarms. The SP500 seems intent on printing 2000, and we could potentially see the market go significantly beyond that. One cannot argue, however, that the market is really looking somewhat bubbly, and that the chances of a crash or large scale pullback seem to rise by the day. Perhaps stocks will continue to climb until that first rate hike actually materializes.
The U.S. dollar index has broken out to the upside this week and could potentially have significant further upside in store. This could potentially weigh further on gold and precious metals as well as other dollar denominated commodities. The U.S. economy appears to be continuing to gather some steam while the Euro zone continues to fight deflation and possible recession.
The fact that gold cannot seem to catch more of a bid given all of the current geopolitical issues going on in the world could potentially be a sign of underlying weakness. We suspect, as we have for some time, that gold may not be able to put together a significant rally until stocks begin to roll over. At this point, there simply is no telling when that may be. Until then, the gold market will likely take its cues from the Fed and economic data stream. Further signs of improvement may add to the selling pressure in the yellow metal.
