Lower Gold Price Offers Buying Opportunity

March 15th, 2016 by

gold rallyThe gold price was lower on Tuesday morning, returning to levels previously seen at the end of February. During trading by 9:45 am ET on Tuesday, spot gold sat at about $1,230/oz, about 0.5% lower.

Monday afternoon saw prices slide back after hovering at the $1,250/oz range for much of the last two weeks. Gold was actually even lower overnight before a modest rally that helped recover some of these losses.

In fact, each of the last two days saw the yellow metal lose about 1% during both trading sessions. For just the 7th time all year, exchange-traded funds backed by gold saw net-selling of shares.

Poor Data Influencing the Market

Much of the action in gold is the result of pure profit-taking after prices advanced to their best since February 2015, a 13-month high. The pullback is fairly natural considering the strong rally that the gold market has experienced over the the course of 2015.

Interestingly enough, recent economic data in the U.S. has been unimpressive of late. First, the most updated consumer spending numbers for February were a disappointment, and included a downward revision of January’s figures, as well.

consumer-spendingAs the chart above demonstrates, a 0.2% rise in retail sales was initially reported for January, but this has now been downgraded to a 0.4% decline.

The story was hardly better in February. The Commerce Department showed that retail spending was 0.1% lower during the month. The weaker spending by Americans was broad-based: 8 out of the 13 retail categories, including auto sales, furniture sales, and purchases of general merchandise all seeing lower totals.

consumer-spendingThis data seriously casts doubt about economists’ predictions that consumer spending is expected to rise by 2.9% this year, annualized. Not only that, it pokes a hole in the long-running narrative that improvement in consumer purchases—which account for an eye-popping 70% of the country’s gross domestic product (GDP)—would drive economic recovery throughout 2016. Instead, worried citizens have been squirreling away cash and saving their money in anticipation of tough times.

On the wholesale side of the equation, the data looked no more encouraging. Thanks primarily to lower fuel costs (i.e. lower energy prices), the producer price index (PPI) fell by 0.2% during February. Gasoline prices fell 15% while the cost of vegetables slid by 19%. Although the consumer price index (CPI) is still yet to be released for February, expectations are for this gauge of inflation to be weaker, too.

As a result of all of these lower prices, which are welcomed by the average shopper but are bad signs for struggling U.S. companies, the stock markets were also lower on Tuesday morning. U.S. indices were about 0.5% lower across the board in early trading. The same trend was seen across the globe, with nearly all equities indices in the red. Many traders are waiting to see what the result of today’s FOMC meeting will be before taking any strong positions in stocks.

Technical Outlook

1-month gold price chart

1-month gold price chart

Looking ahead, the new support levels for gold prices appear to be at $1,230/oz and then $1,226/oz below that. In terms of resistance, a break above $1,238/oz and then $1,242/oz are the new targets.

At any rate, the dip in gold prices presents smart investors with an opportunity to add gold to their portfolio at lower prices for the time being.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.