The gold bulls are in firm control as prices are poised to extend the recent rally. The gold market has seemingly hit its stride even as stocks continue their rally into fresh all-time highs. The notion of gold rising along with stocks, while not extremely unusual, does beg some questions. Notably, what might be driving some degree of risk aversion that is clearly in the marketplace.

Investors are thus far giving the Trump administration the benefit of the doubt, although at some point the stock bulls’ resolve may be tested. The idea of significant tax reforms expected in the near future along with a massive fiscal spending plan (also expected in the near future) has kept risk appetite on the high side. Those plans have thus far, however, been very lacking in pertinent details.

Investor patience on these fronts may eventually become stretched given many of the potentially negative headlines surrounding the new administration. In fact, geopolitical risks would seem to be the primary driver behind gold’s recent upside.

The Fed is also doing a good job keeping investors guessing on the interest rate front. Recent data has pointed to increasing inflationary pressures and ongoing improvement in the economy. Fed Chairwoman Janet Yellen has, however, not committed to any specific timeline for hiking rates further. Recent data along with some hawkish commentary from various Fed officials has raised the prospects for a March hike, although June still seems to be the most likely target for the next hike from the central bank.

The Fed also seems reluctant to begin tightening too fast too soon given the unknowns surrounding Trump administration policies. It is entirely possible that the central bank would prefer to hold off on further tightening until it has more details about Trump’s fiscal spending plans and their potential economic impact.

Over the next couple weeks, the February jobs report is likely the most significant piece of economic data set for release. Whether or not a very strong jobs report is enough to motivate the Fed to act in March is unclear.

Investors may also pay particular attention to bonds and notes in the coming weeks. Interest rates have thus far not been able to move beyond the post-Trump election victory highs, and have actually been declining again in recent trade. This is another mixed signal that investors have to contend with. Further strength in the sector may also be indicative of increasing risk aversion. Bonds and stocks are not likely to rise together for very long, and at some point something will have to give.

If the equity market begins to show signs of topping out, it could give gold investors yet another reason to keep buying and keep the rally going. A sizable reversal in stocks could also send fresh capital flows into gold and alternative asset classes.

Until more clarity is seen on numerous issues including the Trump administration’s plans and the Fed’s trajectory on rates, the path of least resistance in gold is likely to remain higher and any significant dips in gold may be aggressively bought. 

The gold market ended last week not far from recent highs, and the yellow metal looks poised for further gains. The gold market has a few things working in its favor right now, and some key data out of the U.S. last week is seemingly pointing to yet another reason to consider buying gold right now.

Last week’s Producer Price Index as well as the Consumer Price Index both showed rising inflationary pressures. The CPI data showed a month-over-month rise of .6 percent, while consensus estimates were looking for a rise of .3 percent. This reading was the highest reading recorded in almost four years.

The core CPI data (stripping out volatile food and energy) showed a month-over-month rise of .3 percent, while consensus estimates were looking for a rise of .2 percent.

Headline year-over-year CPI showed a reading of 2.5 percent, well above the Fed’s desired target of 2 percent.

This stronger than expected inflationary data along with ongoing strength being seen in key economic data could potentially ,motivate the Fed to act sooner rather than later, and could possibly boost the odds of a March rate hike from the central bank.

Thus far, equity markets have essentially shrugged off the notion of higher rates, as hopes for major tax reforms and fiscal spending from the Trump administration keep the rally going. A March rate hike could, however, act as a shot across the bow, and stock investors may begin to get a little more anxious if the central bank follows through on a more aggressive stance with monetary policy.

Investors for now, however, are still questioning the likelihood of seeing three rate hikes this year. This does make a lot of sense, after all, given expectations for more hikes last year that never materialized. The bond market has been relatively range bound in recent weeks following the initial rump victory sell-off, and the fact that bonds have not broken further would seem to indicate that investors are not overly concerned about an aggressive Fed.

Even if the Fed does begin tightening, gold may potentially see ongoing support from rising inflation expectations and a number of geopolitical issues.

The Trump administration has seemingly had numerous issues, and more controversy surrounding the administration and its policies is a good possibility. Like the notion of rising rates, investors have thus far been able to shrug off the uncertainty that has been seen since the new administration took office. Investors have their breaking points, however, and at some point those limits may be tested if present trends continue.

In a shortened trading week due to the President’s Day Holiday, investors will focus on some key data points including Weekly Jobless Claims, Consumer Sentiment and more. The data highlight of the week, however, will be Wednesday’s release of the latest FOMC meeting minutes.

This report could potentially shed further light on the Fed’s assessment of economic conditions as well as its plans regarding interest rates.

Gold may challenge its recent highs this week, and the Fed minutes could either fuel a fresh leg higher or possibly put the brakes on gold’s recent rally. If a decent pullback in the yellow metal is seen, investors may simply view it as a buying opportunity. 

The gold market remains on the offensive as ongoing uncertainty surrounding the Trump administration and implementation of its policies continues to cloud investor sentiment. That being said, however, investors are still giving the new administration the benefit of the doubt.

Stocks carved out fresh all-time highs this past week as hopes for major tax reforms are riding high. President Trump has indicated that a major announcement regarding taxes would be unveiled in the near-future. This was likely the primary catalyst for stock buying this past week, and could potentially fuel a much more significant rally in equities and risk assets if Trump’s plans are met with open arms by investors.

On the other hand, if the new administration’s tax plans do not carry a certain “shock and awe” type of effect, markets could potentially be setting themselves up for disappointment.

Although the notion of significant tax reforms has investors excited-for the time being anyway- there are still numerous issues that could potentially weigh on investor sentiment and stock prices.

The ongoing debate over Trump’s immigration ban (and appeals over the plan being rejected) may continue to feed some degree of investor angst. Other issues, such as Trump’s now infamous tweeting, may also potentially have an important impact on investors and markets.

The new administration’s stance on the dollar is even the subject of debate, and that has likely been a factor in the greenback’s lack of upside follow through following its post-election highs. The dollar does appear to be poised for another try higher, however, and the dollar index is once again trading firmly above the 100 level.

After trending higher for a couple weeks, bond prices backed off a bit this past week as interest rates once again started to climb. Rates have not, however, challenged their post-election highs again.

To say that there are numerous mixed signals in the markets might now could be an understatement. At some point, something’s gotta give… The question is: what will it be and when might it happen?

Gold prices and rates rising along together could potentially signal trouble ahead for equities. Such a scenario should not be that surprising, however, as stocks have been rising for years now.

Perhaps investors are thinking about how long it has been since the last major financial crises. It has been several years since the financial crises of 2008, and the U.S. could be walking right into the arms of recession.

Given the sheer amount of uncertainty surrounding the Trump administration as well as the possibility of economic recession, gold may potentially continue its recent ascent. The Fed may elect to hold off on several additional rate hikes (some analysts have already been questioning the possibility of three hikes this year) and rates could remain very low for some time to come if recession does hit or if other geopolitical issues fuel widespread risk aversion.

The next several weeks may be very telling, and it is quite possible that gold has already put in a significant long-term bottom.