The Week Ahead in Gold
The stock market is sharply higher Monday as the new trading week gets underway. As stocks rise, global risk aversion is on the decline and perceived safe haven assets such as gold and silver are under selling pressure.
Despite gold’s lack of upside today, however, its long-term prospects remain quite bullish. The yellow metal has possibly built a major long-term bottom at this point as prices have remained range bound from $1500 to $1600 for the last few months. The bears have been unable to push prices lower and willing bargain hunters have stepped into the market to buy any major dips. An additional upside breakout could potentially take some time to develop, but for now, the bulls appear to be content with prices maintaining their recent range. The next logical upside push could possibly target previous all-time highs near $2000 per ounce and could take place rapidly.
The spread of the coronavirus remains a major area of concern for global markets. Chinese markets, which opened for the first time in over a week due to the Lunar New Year Holiday, declined by almost eight percent for the largest drop in over four years. European markets, which have been open for business, were mostly higher Monday. The virus has been on the move, and both domestic as well as global business in China is being disrupted. The ongoing business slowdown, in addition to travel restrictions, could have a significant impact on Chinese GDP. Markets may have already priced in a drag on GDP, however, as both U.S. and European markets are higher today.
In bearish news for gold on Monday, crude oil is lower, trading for less than $51 per barrel. It has been reported that Saudi Arabia is considering a drastic production cut and OPEC officials may even get together this week to discuss the market. The U.S. Dollar is also seeing a bounce back from declines seen on Friday, and the stronger greenback is also likely weighing heavily on gold and other metals.
After the gold market hot a three-week high overnight, prices have calmed down and the market has made a bearish outside day on the daily bar chart. The multi-month uptrend does remain intact on the daily chart, however, and the bulls may need to target the January highs near $1620 to attract further buying interest. The $1550 region on the downside could hold the keys for the bears. The market bears must produce a solid close or series of closings below this level to gain momentum.
In other gold news, gold-backed ETFs saw record level inflows in 2019 in what may be construed as a bullish factor for the market. The inflows could also suggest that the market is seeing more interest from both institutional as well as retail investors amid much of the global uncertainty seen over the past year. The rising global uncertainty trend is likely to continue, as the global trade war continues and as the global economy remains a bit softer. This increasing demand for gold could pave the way for the next bullish run higher and increasing demand for bullion could set the stage for a new all-time high in the yellow metal sometime this year.