The gold bulls are putting some significant distance between prices and the $1800 level today. Following the release of the latest reading on second quarter GDP, which as well below expectations, the bulls have given themselves the green light to buy. The yellow metal now sits at over $1830 per ounce and could be gearing up for a more sustained attempt higher.
The weaker than expected GDP data may serve to underscore the Fed and its desire to hold policy steady. Although the headline data was a bi of a disappointment, it was not bad. With a savings rate of nearly 11%, consumers still have ample capital laying around that could be out to work, driving growth higher and sustaining the economic recovery.
As investors and markets sift through today’s GDP data, they are also still digesting yesterday’s Fed meeting announcement and commentary. Although the initial commentary from the central bank may have been viewed as being slightly less dovish, by the end of the day the markets appeared to be pleased with the Fed and its remarks. Even if the Fed does begin to taper its bond purchases later this year, it seems to be in no hurry at all to begin raising interest rates. The central bank’s willingness for accommodation may last several more years, in fact, and could keep pressure on the Dollar Index along the way. The dollar is seeing some selling activity today as it moves lower while
yields are stable at the 1.27% area.
In addition to the weaker GDP figures, markets may also be reacting today to slower housing data. The latest figures on pending home sales showed a decline of 1.9% in June. This drop may have caught the markets off-guard as consensus estimates were looking for a gain of .3%. The decline in pending home sales may be due in large part to the rapid rise in home prices that has been seen in recent months. Some buyers may be electing to take a wait and see approach rather than risk overpaying for a home. As record high prices weigh on consumer sentiment, it could eventually lead to a market reversal as the market slows further. The housing sector is watched closely and could affect the Fed and its decision making. If the sector slows further, it may pave the way for the Fed to remain highly accommodating which could keep stocks moving higher and the dollar moving lower. Any ongoing continuation of easy monetary policies could keep the gold bulls on the offensive as well and could set the stage for a challenge of previous all-time highs in the months ahead.
A move beyond previous all-time highs on a closing basis could drive further buying in gold that could take the market sharply higher in little time. With no upside chart resistance above the highs, any substantial buying activity could fuel a rapid run higher in value that could see the yellow metal hit $3000 or even $5000 per ounce in short order.