After seeing some significant downside in recent action, the gold market is trying to find some stable footing once again. The gold bulls showed some signs of life this past week as prices staged an upside breakout from recent sideways action, however, the follow through on that breakout has not been much to write home about thus far.
Unless a solid push higher in prices is seen this week, the gold market may once again find itself on the defensive.
The gold market finds itself in a peculiar place currently, having several issues potentially working for and against it. Although the notion of higher interest rates has weighed on gold in recent weeks, the idea of extremely slow and incremental hikes in the Fed Funds rate could still be considered bullish for the yellow metal. Not only that, but some of the recent data released is less than stellar, prompting some analysts to speculate that the Fed will in fact not raise rates in December and will remain on hold until sometime next year.
Higher global equity markets have also likely weighed on gold. The broad market S&P 500 remains not far from recent all-time highs, yet has been unable to make a new high for some time now. In fact, the longer the market remains close to previous highs without any attempts at a fresh high, the more potentially volatile price action may get if the market starts to break down.
Perhaps the biggest factor weighing on gold in recent weeks has been the strength seen in the U.S. dollar. The greenback has been on the rise and is currently trading at levels not seen since last March. Looking at the larger timeframe, the dollar index is approaching the 100 level, and along with it the top of a five year trading range.
The combination of possibly higher rates and a sinking Great British Pound are likely the primary drivers of current dollar upside, and the greenback could have further room to run. An upside breakout of the recent five year trading range could potentially see the dollar move significantly higher, and could potentially fuel selling in gold, silver and other dollar-denominated commodities.
Of course, all of these potentially bearish issues for gold could turn on a dime. With a very busy string of economic data coming up this week, things could get interesting.
Investors will get the latest readings on several key pieces of economic information this week including Consumer Confidence, New Home Sales, GDP, Weekly Jobless Claims, PMI Manufacturing Index, Durable Goods Orders and more.
All of these key data points have the potential to be market-moving, and any significant misses in this data could potentially fuel fresh speculation on the likelihood of a December interest rate hike. Such speculation could have a large impact on equity, interest rate and currency markets.
Gold has been lacking any fresh bullish catalyst for some time now. That being said, however, it seems that several factors could be coming into play in the near future that could potentially drive gold sharply higher. If gold is not able to sustain a rally from current levels, we would expect another wave of selling to push prices lower-and represent an excellent buying opportunity for the long-term investor.