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What’s weighing on gold prices?

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Gold prices could be headed lower, at least in the short term. Sam Stovall of S&P Capital IQ believes gold has to retest recent lows, before it can continue the rally it’s seen so far this year.

“[Gold] prices did break through its zone of resistance at 1,275 to about 1,300 and now it’s coming back and I think it needs to go through a re-testing process,” said Stovall. “Our belief is that it is on an upward trajectory, but it does have to go through this re-test and we would look to about $1,260 for gold prices to be an important level of consideration.”

Stovall also points out that investors have had an atypical reaction to the recent geopolitical tensions rising between Iraq and Syria. “Gold also is a safe haven and so increased tensions usually help gold,” he said. “You would have thought that with Syria bombing Iraq, killing 50 people on Tuesday that that would have been a concern, but oil prices actually headed lower on that day, so I think the markets were sort of casting that aside… as being the start of a much bigger concern.”

Going forward, gold investors should watch inflation, says Stovall. He believes the Fed will let Personal Consumption Expenditures deflator – the Fed’s favorite measure of inflation - rise a little higher than current levels before they get too concerned.

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