Gold Tests 1-Month Lows

Market Trends - 05/06/2015

Gold prices have been incredibly sensitive over the last week to the downtick in inflation and uptick in the dollar as prices trend near lows not seen since the beginning of May. Rumors about Greece reaching a deal which were immediately denied by the country’s creditors sent the Euro soaring against the dollar in what appeared to be a substantial short squeeze in the currency pair as speculators flatten out positions with the unfolding situation becoming more uncomfortable by the day. Even though Greece is on the verge of bankruptcy, the probable outcome of negotiations is anyone’s best guess with no way of analyzing the potential aftermath. Greece’s rejection of creditor proposals should have been the end of negotiations, but it seems as the if the Euro Area is nevertheless worried about the implications of a member state leaving the region and the precedent that negotiating sets for other nations with swelling debt levels and high unemployment.


Meanwhile, across the Atlantic, the US outlook is equally confusing after multiple downgrades of the economic outlook, both from sell-side banking institutions and the IMF. Predictions are for GDP expansion of approximately 2.50% for 2015, as opposed to initial indications that growth would top 3.00% for the year. However, any action from the Federal Reserve could drastically impact that figure, with further revisions to the downside probable if today’s employment data comes in at or above expectations. This would increase anticipation that the Federal Reserve will opt to raise interest rates in the September meaning, even if not by the normal 25 basis point steps they traditionally use in modifying monetary policies. If this is the case, dollar momentum higher is likely to precipitate, causing gold prices to test support at $1162 per troy ounce before reaching $1150. Any move below these levels could see prices hit multi-year lows as dollar and inflationary pressures, cause further losses in precious metals.

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