The Influence of the General Stock Market and Crude Oil on Gold (GLD, IAU, USO, SPY)
Przemyslaw Radomski: We’re getting whiplash from all the political changes in Europe, neo-Nazis in an unstable government in Greece and a changing of the guard in France– “adieu” to Nicolas Sarkozy. We see plenty of reasons for holding on to our long-term gold positions despite the clobbering the yellow metal got on Wednesday down to a four-month low. The euro tumbled this week against the dollar in the worst run since 2008. There is an intense resurgence of political risk in Europe and a couple of months of weak jobs numbers in the U.S. All that has put stimulus back on the table. Another item on the table is the risk of a Greek euro exit, which has risen to as high as 75 percent; according to Citigroup Inc. We also see a rising anti-austerity tide gaining ground in Europe and the abolishing of a gold excise duty in India, all favorable for gold.
Francoise Hollande has been elected France’s president, the first socialist president in almost two decades, on the promise that he would deliver an alternative to the austerity diet. The French have been wondering who had moved their high-calorie cheese. They have become tired of the message reiterated by Nicolas Sarkozy that painful choices and belt tightening will bring jobs and growth. Hollande takes power at a critical juncture for both France and Europe and he will have to deliver fast –no honeymoon vacation. France has a ten per cent unemployment rate and its labor costs are among the highest in the OECD. With a budget deficit for almost 40 years, France lost its triple A credit rating this year. The day after Hollande takes power next Tuesday, France must raise €12 billion on the markets. He then will have to convince German chancellor,Angela Merkel, who was cozy with Sarkozy, to renegotiate the European budget austerity pact to add measures on growth. Investors are worried about potential tension between Germany and France, the two eurozone heavyweights.
It is not likely that Germany will be willing to foot the bill for Hollande’s campaign promises.
Having discussed the political factors driving the price of gold, let us now see how the markets can influence the yellow metal’s behavior in the days to come. We will start today’s technical part with analysis of the S&P 500 Index and begin with the long-term chart (charts courtesy by http://stockcharts.com.)
Let us now take a look at the financial sector.
Let us now move on to the crude oil market and try to find out whether the black gold will have an impact on the real one’s future price.
Overall, the signs here are blurry but favorable for gold in the short term, as the gold market has been generally aligned with the crude oil market this year. This is not necessarily true for the very short term, but the two markets were generally positive correlated lately and their overall directions are similar. The implications from the crude oil price chart are a bit more bullish for gold than not as the support line is closer than the resistance line and the RSI says “buy”.
To finish off today’s essay let’s have a glance at our in-house developed tool that traces the intermarket dependencies.
Summing up, the situation in the general stock market is mixed for the long term and a bullish scenario seems a bit more likely than the bearish one for crude oil. The implications for gold based on the outlook for crude oil and the general stock market seem to be a bit more bullish than not at this time.
Related Tickers: SPDR Gold Trust (NYSEARCA:GLD), iShares Gold Trust (NYSEARCA:IAU), United States Oil Fund (NYSEARCA:USO), SPDR S&P 500 (NYSEARCA:SPY).
Thank you for reading. Have a great weekend and profitable week!