Gold stocks in focus

Gold stocks in focus

By Ric Spooner (Chief Market Analyst, CMC Markets)

The Australian market looks set for another firm but relatively quiet day’s trading. Fresh news may be needed to push the index above its recent trading range.

Investor outlook is wedged between expectations of ongoing valuation support from central bank monetary policies on the one hand, but moderate prospects for economic and profit growth on the other.

Last night’s existing home sales figures was the latest in a series of statistics for June suggesting economic growth may be starting to flat line around the 2% rate in the US. While home sales are well up on last year and indicate a healthy housing market, they join a number of recent statistics such as housing starts and retail sales where performance in June was somewhat below comparable figures for May.

This levelling out in growth rates is one factor driving the strong moves in precious metals and the US Dollar early this week. The significant rally in precious metals prices since the weekend has occurred despite the lack of an obvious news catalyst. Investors appear to be adjusting for a view that markets have overshot on the timing and impact of Fed monetary tightening. Economic growth will need to pick up from current levels for markets to bring forward current expectations of any actual increase in US interest rates from late 2014 at the earliest. This view has been driving the USD lower in recent days.

Gold miners are likely to be one of the most closely watched sectors in today’s market. Yesterday’s rally has left gold parked at the technical resistance level formed by its 50 day moving average and its 20 May lows. A clear break above this resistance would encourage technical traders to the view that a more significant technical rally could be in prospect.
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