The Week Ahead In Gold

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Gold ended the week on a high note, showing further signs of underlying strength. From a technical standpoint, the gold bulls appear ready to challenge the recent highs, and a test of the $1400 level may be in store. The fact that gold continues to climb along with stocks is certainly noteworthy, and at some point this positive correlation is likely to diverge.

 

Gold may see follow through buying this week as uncertainty over the pace and timing of any additional rate hikes by the Fed becomes an area of investor focus. While the FOMC appeared to be significantly more upbeat about the economy, other data painted a different picture. This will only fuel further speculation on whether or not the Fed looks to tighten again anytime soon.

 

On Friday, Q2 GDP data released missed expectations by a large margin, registering a reading of only 1.2 percent. Consensus estimates were looking for a reading of 2.6 percent. In fact, in recent weeks, hopes were for a number approaching the three percent mark. Those hopes faded rapidly, however, as some key pieces of economic data such as Durable Goods Orders failed to meet expectations recently.

 

Despite the lousy headline number, there were some positives in the report. Consumer spending rose by 4.2 percent, while net exports rose by 1.4 percent.

 

This data will certainly give the Fed more to consider when it meets again. While Fed Fund futures are pricing in a moderate chance of  a September interest rate hike, the Fed could potentially elect to hold off until December or even next year.

 

In addition, while post-Brexit volatility and selling in stocks has abated-for now anyway-it remains unclear as to just how the historic vote might affect financial markets. This issue could still present a significant headwind for global markets and will likely be monitored closely by policy makers.

 

The dollar was beaten up badly on Friday following the GDP data, declining 1.27 percent during the session. The greenback has essentially fallen back near its previous trading range, and additional weakness could be seen if economic data disappoints and the Fed is given more reasons to keep rates steady at current levels.

 

The highly anticipated Bank of Japan meeting was a disappointment for investors, as the BOJ did not cut rates further into negative territory or institute more significant measures.  While some adjustments were made, policy makers did leave the door open for further easing in the future. Japanese stocks sold off on the news but later recovered. This may simply be another sign of just how dependent equity markets have become on quantitative easing.

 

Gold has held up very well considering recent strength seen in equities. Despite that strength, however, interest rates remain not far from all-time lows. At some point, this divergence is likely to come to a head, and stocks could potentially see a significant sell-off from current levels. This could potentially drive additional capital into gold and other perceived safe haven assets. For now, however, it appears that the path of least resistance in stocks remains higher, as yield hungry investors have few, if any, alternatives.

 

While we expect gold to remain on the offensive despite higher stocks, any signs of significant weakness in equities could potentially fuel a much sharper rally in gold as more investors look to jump on the bandwagon. 

The Week Ahead In Gold

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The gold market has been on its heels in recent weeks, as equities have pushed to fresh all-time highs and overall risk aversion following the June 23rd Brexit referendum has dissipated. While we expect dips in gold to continue to be bought by investors, there is the possibility of additional downside in the yellow metal.

 

Recent price action in gold may also be indicative of position squaring and profit taking before two key central bank meetings this week.

 

On Wednesday, the U.S. FOMC will conclude its two day meeting on monetary policy. Fed Fund futures contracts show only a miniscule chance of a rate hike this week, but the odds of another rate hike in the coming months appear to be on the rise. Of course, general opinions on the pace and timing of further rate hikes can change quickly, and investors will be paying close attention to the central bank’s commentary regarding rates.

 

A more hawkish sounding Fed could potentially boost the dollar and drive selling in gold and precious metals, while commentary that is more on the dovish side of the ledger could potentially put a halt to the recent dollar rally and give metals a boost.

 

The Bank of Japan will also be meeting this week and speculation has grown that the central bank will announce further easing measures. The outcome of this meeting could be particularly interesting as either outcome could be considered bullish for gold prices.

 

If the BOJ does ease further, rates will be driven further into negative territory in another sign that the era of global money printing and low, zero or even negative interest rates is far from over.

 

On the other hand, if the BOJ stands pat for now, it could give the yen a boost, and gold prices frequently show a positive correlation to the Japanese currency.

 

While the ECB did not ease further at its policy meeting last week, it did seemingly leave the door wide open for further stimulus measures as the region continues to fight deflationary pressures and the effects of Brexit remain unknown.

 

The bottom line in this really seems to be: How much can the U.S. raise rates while so many other nations are still easing?

 

It would seem to make sense that the path of additional hikes by the Fed will remain very slow and incremental. Overly aggressive changes to monetary policy could not only put the brakes on domestic economic activity, but a divergence between the U.S. and other nations could potentially stoke volatility across markets including currencies, interest rates and more.

 

While gold investors may be taking a wait and see approach this week ahead of these central bank meetings, we would expect buying interest in the yellow metal to resume.

 

On another note, as the U.S. Presidential election approaches, it stands to reason that gold may see further interest as the uncertainty surrounding the potential outcome drives investors from risk assets into perceived safe havens.

 

There have already been numerous pieces written about the potential effects on gold that a Trump victory could have, with an analyst from ABN Amro even suggesting that a Trump Presidency could push gold prices higher by $500 per ounce or more.

 

This is a topic that will likely drive gold in the coming months, as any significant changes in monetary policy are unlikely. In the short-term, however, gold will likely take its cues from central bank activity, equity markets and overall risk appetite or aversion. 

The Week Ahead In Gold

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The gold market could potentially see some additional selling this week as higher stocks and rising rates point to an improvement in overall risk appetite. Some profit taking and back and fill trade is to be expected in gold at this point following recent upside, and may simply prove to be a short-term detour before another leg higher.

 

Although the June 23rd Brexit referendum has been the focal point of markets for several weeks, that historic vote has begun to take a back seat to other issues. On Friday, the nation of Turkey experienced an attempted coup that dominated news headlines over the weekend.

 

The coup was a failure, and President Recep Tayyip Erdogan appears to be in full control of the country. Unfortunately, this type of uprising often does not work out well, and it will be some time before the nation feels secure again. In the meantime, there have been talks of bringing the death penalty back and thousands have been arrested.

 

While the issues seen in Turkey over the last couple days have not had a major impact on global markets, it does go to show just how fragile peace and geopolitics can be.

 

In other news, the world is still reeling from last week’s terrorist attack in Nice, France in which 84 people lost their lives and hundreds were injured. This terrorist attack did not have a large impact on global markets, and unfortunately, it seems that the world has grown accustomed to such attacks. The threat of terrorism is something that may have to be dealt with for a long time, and the possibility of increasing risk aversion in global markets always exists.

 

Markets will likely turn their attention this week to the Republican National Convention being held in Ohio this week. With the top candidates having major differences on so many key issues, investors will likely pay more attention to the Presidential race as it approaches the finish line. A close race has the potential to impact markets and drive risk aversion as the uncertainty over the direction of the country going forward could compel investors to dump risk assets in favor of perceived safe havens.

 

This week will be on the lighter side from a data perspective, and trading volumes could begin to dry up as investors take vacations and get away from markets for a bit. That being said, investors will get the latest readings on some key pieces of housing data, as well as Weekly Jobless Claims, PMI Manufacturing data and Leading Indicators.

 

The ongoing debate over the pace and timing of any further rate hikes by the Fed will likely continue, but for now it appears that the dovish camp may have the edge. The reality is that even with another hike, or even two or three, interest rates will likely remain low for some time to come as ongoing concerns over China, Brexit and other issues keep the Fed from being too aggressive.

 

While the notion of lower rates for longer is bullish for stocks, it is also bullish for gold and precious metals. Thus far, gold has held up well in spite of stronger equities in what could be a sign of underlying strength. By the same token, one has to wonder just how much stocks may have left in the tank.

 

Any signs of weakness in equities could potentially send more investors running for gold and other perceived safe havens, and gold may simply be biding its time before another major push higher. The current dip in gold may prove to be nothing more than another great buying opportunity. 

The Week Ahead In Gold

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The gold market continues to show several signs of significant underlying strength and appears poised for further upside. With the $1400 per ounce level within site, the bulls will likely continue to push for higher prices as ongoing risk aversion keeps buyers on their toes.

 

Investors are getting numerous mixed signals currently, and some significant market volatility could potentially be in store. While Friday’s Employment Situation report showed the U.S. added 287,000 jobs in June and was far beyond consensus estimates, the reality is that a large number of people have simply given up and are not actively looking for work.

 

Stock investors cheered the release of the non-farm payrolls data, and drove the S&P500 to within easy striking distance of fresh all-time highs. On the other hand, however, interest rates remain near all-time lows and thus far have not shown signs of bottoming.

 

In other words, the bond market is saying economic troubles may still lie ahead while the stock market is choosing to shrug off many of the numerous issues that could potentially weigh on global markets.

 

This divergence between stocks and yields will likely not last very long, and at some point something’s got to give.

 

While the gold market has many reasons to see higher price levels, risk aversion and concerns over the global economy are likely one of the main drivers currently. It would seem that both the treasury markets and the precious metals markets see challenges ahead.

 

The fact that stocks recovered almost immediately from the sell-off seen following the June 23rd Brexit referendum may not point to underlying strength in equities or companies, but rather the fact that stocks may just be the only game in town right now.  

 

With the ten year note yielding less than 1.4 percent, many investors seem content taking their chances with equities.

 

Unfortunately, the rally in equities remains vulnerable to an abrupt end, and a reversal that could make 2008 or 2009 look like a day at the beach.

 

Investors are already looking to gold and other perceived safe havens for refuge, and should the stock market bubble suddenly pop, gold could potentially see a massive influx of investment capital.

 

Perhaps continuing to fuel the stock market bubble is the notion of lower rates for longer. Even in spite of Friday’s non-farm payrolls data, many key economic indicators point to sluggish growth. Given ongoing difficulties in the U.S. and the state of the global economy, it is difficult to imagine a scenario in which the Fed would become more aggressive regarding monetary policy.

 

So for now, it seems that the easy money spigot will remain fully open, and if necessary, the central bank could even cut rates again in the future.

 

The current situation with interest rates could be considered bullish for both stocks and gold, with some key differences.

 

Rates are not likely to rise by any significant amount anytime soon, and that may keep gold and precious metals on the offensive. On the other hand, however, stocks may only run so far before extreme valuations and even a hint of higher rates take their toll.

 

The bottom line may be this: Equity investments here could be extremely risky given the upside seen in stocks in recent years and the economic weakness seen around the globe. Gold, on the other hand, could be at the beginning stages of a prolonged bullish cycle that could potentially see prices several hundred dollars or more per ounce higher than current levels.

 

Given the uncertainty surrounding the possible effects of Brexit, the spread of negative interest rates and a weak global economy, what do you think is the better bet?

The Week Ahead In Gold

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The gold market may be poised for a retest of recent highs after posting another solid gain of nearly 1.5 percent in Friday’s trade. Gold had a particularly strong showing to end the trading week, as investors geared up for the long Fourth of July Holiday weekend. This week may bring more follow-through buying and gold may find itself at the beginning of a long and extensive leg higher.

 

More than a week has now passed since the historic Brexit vote was finalized, and markets are still trying to make heads or tails of the potential implications. Calmer heads have prevailed in equity markets in recent days, although it remains to be seen whether or not stocks can once again challenge previous all-time highs. The recent strength in gold and decline in interest rates just goes to show that investors remain very nervous and there is a strong degree of risk aversion present.

 

Increasing discussions of Scotland and Northern Ireland seeking independence from the U.K. following the Brexit vote will likely only add fuel to the fire, and global equities and risk assets will remain quite vulnerable to further selling.

 

In the current state of global economic affairs, it is difficult to imagine anything other than very supportive central banks. The U.S. Federal Reserve cited the risks from Brexit in its latest statement in which the central bank elected to keep rates at current levels. The Bank of England and the European Central Bank may both now have to utilize additional stimulus measures in order to try to boost output and stabilize their respective economies.

 

The notion of more quantitative easing in Europe and further stimulus measures by the People’s Bank of China may keep the Federal Reserve on hold for longer than originally anticipated. The ongoing scenario of low rates and further QE may keep a floor under gold prices for the foreseeable future.

 

This week, markets will pay close attention to a number of key data points, perhaps the most significant being the U.S. Employment Situation report on Friday. The non-farm payrolls data for May was a bad miss, showing an addition of just 38,000 jobs. Consensus estimates are looking for an addition of 180,000 jobs in June, with the unemployment rate steady at 4.7 to 4.8 percent.

 

While a lower than expected number may drive further fears about the U.S. economy, it could potentially boost stocks as it may be yet another reason for the Fed to hold rates steady, or even cut them again in the future.

 

Such a scenario, however, is very demonstrative of just how dependent equity markets have become on “easy money.” This begs the question of just how much further equities may be able to climb given stagnant economic conditions and a lack of profit growth.

 

Given the current number of unknowns that have the potential to drive global markets, investors may continue to reallocate assets and much of that capital could find its way into gold and other perceived safe havens.

 

With the rebound seen in stocks this past week after being heavily sold-off, the markets may tip their hand sooner rather than later. It may become a “do or die” time for stocks, which will need to start making fresh highs in order to keep investors interested. If stocks are unable to mount additional upside, the selling could resume and gold could potentially be off to the races.