The Week Ahead In Gold

/0 Comments/in , /by

The gold market is quiet in early action Monday to begin the new trading week, but the yellow metal is not likely to fall far any time soon as several issues keep the safe haven bid alive and well.

 

On Friday, North Korea once again tested an ICBM that apparently has the potential to strike the U.S. mainland. This is being seen as yet another act of defiance by the North Korean regime, and the time for action could be approaching.

 

President Trump recently expressed frustration with China for not doing more to control North Korea. It was hoped that China may be able to exert heavy influence over the North due to its status as the North’s largest trading partner. Thus far, however, any Chinese influence over North Korean leadership does not appear to be enough to force the regime to rethink its nuclear ambitions.

 

Japan has become more vocal in recent weeks voicing its concerns over North Korea’s missile capabilities, and the U.S., Japan and South Korea have been actively conducting exercises to counter the threat.

 

Although military action may be a ways off, diplomatic efforts have thus far not been productive. The U.S. and some key allies may now look to be more aggressive with North Korea and attempt to ramp up the economic pressure on the isolated nation. This could be done through various means including stiff fines and penalties for banks and others that do business with the nation. It has been suggested that much of the country’s nuclear program has been financed through various off-the-books business dealings such as arms sales and forced labor. Whatever the case may be, this situation could affect global markets with any further escalation, and hopefully a peaceful resolution will be found.

 

In the meantime, however, gold and other hard assets may remain well-bid as anxious investors seek their perceived safety.

 

Also on the geopolitical front, Russia has said it will look to expel 750 diplomats in retaliation for U.S. sanctions. This is yet another sign of strained relations between the U.S. and Russia.

 

A major test may be approaching for gold. The market has been trending higher and is nearing its recent highs. If the yellow metal is able to break out above those previous highs, others may want to climb on the bandwagon and the metal could be off to the races.

 

In addition to the numerous geopolitical issues currently being faced by global markets, the gold market may also benefit from a more dovish-sounding Fed and weaker dollar index. It appears that another rate hike will likely not be seen until the end of the year, and some are questioning just how aggressive the central bank may be when it comes to any further tightening of monetary policy.

 

The dollar index has been moving lower on a lack of inflation, dovish central bank rhetoric and lack of major tax reform or fiscal spending legislation being passed. These factors could fuel further upside in the gold market, and the metal could be on the verge of a protracted bull market as the stock bull market may be drawing to a close. 

The Week Ahead In Gold

/0 Comments/in , /by

The gold market has been showing some signs of underlying strength in recent trade, as the metal has recouped nearly $50 per ounce recently. Although gold still remains within its multi-month trading range, the yellow metal could potentially be headed for an upside breakout.

 

Gold has had a number of bearish factors working against it in recent months. These factors include a previously more hawkish-sounding Fed, all-time highs in equity markets and a stronger dollar. Despite these issues, however, the yellow metal did not suffer any major breakdowns in price.

 

You could make the argument that the tide has turned in recent weeks. The Fed appears to have taken a very different tone in recent commentary. Although some policy hawks remain, the central bank seems to be taking a more cautious approach regarding monetary policy. In fact, the central bank will likely not raise rates again until December, if they do at all again this year.

 

Although the central bank is fulfilling its mandate regarding full employment, inflation remains well under the Fed’s desired target of 2% on an annualized basis.

 

The dollar seems to be telling a similar story. The greenback strengthened in the aftermath of the Trump Presidential victory on the idea of fiscal spending, higher economic growth and tax cuts. The administration, however, has yet to pass any major legislation regarding infrastructure or tax reforms. Currency markets have been paying attention, and the dollar could be on the verge of a significant leg lower in price.

 

Further weakness in the dollar could keep gold well-supported, and as long as the dollar remains on the defensive gold is not likely to see any major moves lower.

 

This would seemingly leave equity markets as the primary hurdle standing in the way of a major upside breakout in gold. Stocks have not strayed far from all-time highs, but you could certainly argue that the aging bull is getting quite long in the tooth. Some analysts have even suggested that a major top in stocks could be seen in the coming weeks.

 

If or when stocks do reverse course, the fallout could be significant. Although estimates vary, the market could potentially see a drop of over 20 percent, and some have even suggested that a drop of 40 or 50 percent could be seen. If or when the trend does turn lower, much of the capital currently invested in stocks could begin to look for alternatives. Gold could very well be at the top of the list and could see massive inflows if stocks see a swift and severe correction or enter into what could be a protracted bear market. 

 

In the meantime, safe haven buying may also keep gold moving higher. The Trump administration appears to be in serious turmoil. On Friday, Press Secretary Sean Spicer resigned as Trump hired Anthony Scaramucci as his communications director. The shakeup in the Trump White House could be just getting under way. The President has been under increasing scrutiny as the ongoing investigation into alleged collusion with Russia by the Trump campaign to sway the election is taking a toll.

 

The path of least resistance in gold has turned decidedly higher, and a breakout of recent highs could possibly set the stage for a major leg higher in price. 

The Week Ahead In Gold

/0 Comments/in , /by

Gold ended the prior trading week on a high note, rising by over $10 per ounce as silver also gained ground. The yellow metal may need to get the new trading week off to a strong start in order to keep any bullish momentum going.

 

The gold market could potentially see an about-face as interest rate expectations change. Although the Fed recently raised rates again, there is a degree of ongoing debate as to the central bank’s plans going forward. The Fed recently reiterated its plans for another hike this year, but that hike may now not be seen until December-if it is seen at all.

 

There is no question that numerous key economic indicators have shown dramatic improvement in the last several months, there are, however, remaining concerns about the overall strength of the recovery.

 

GDP figures have not been much to write about, and the continuing lack of inflationary pressures has to be a source of concern. Recent inflation data showed price pressures rising at a 1.7% annualized rate, well below the Fed’s 2% target. While the Fed has alluded to the lack of inflation being “transitory,” the fact that prices are not rising despite ultra-low rates and increasing employment is a story that may continue to unfold.

 

The upcoming trading week is relatively light in terms of data release, but leading indicators and housing data could provide investors with more clues about economic activity.

 

A seemingly more dovish Fed could green light further buying in already overstretched equity markets, while at the same time also providing precious metals investors reason to buy. The current scenario of low rates, higher stocks and sideways to lower gold is not likely to continue much longer, and markets could be on the verge of some significant movement.

 

The equities markets could be setting up for a major fall, and the next major downdraft could potentially be nastier than 2008/2009-wiping out billions of dollars of investor value in the process. In fact, the Fed could even be forced to begin lowering rates once again if the stock market gets hit hard or if economic activity contracts. Any way you slice it, it would appear that the era of loose monetary policy is far from over.

 

The notion of relatively low rates for the next several years could be constructive for gold. With the possibility of recession on the rise, along with a major reversal in stocks, now may be the ideal time to consider an allocation in gold and other alternative asset classes.

 

 

The masses remain highly optimistic about the economy and the stock market. The gold and bond markets, however, seem to be telling a different story. Despite gold’s recent declines, the yellow metal has not fallen far from its recent trading range, just as rates have not been able to mount a significant ascent. This could potentially be a warning signal.

 

Gold could see further declines, although any activity at or around the $1200 per ounce level is likely to be met with heavy buying interest. Gold may simply be biding its time, until the next major bullish catalyst fuels what could be a protracted upside breakout.

 

Don’t be surprised at all if such a bullish catalyst comes in the form of a major stock market collapse. 

The Week Ahead In Gold

/0 Comments/in , /by

The gold market has been trending lower over the last few weeks as numerous issues stand in the way of higher prices. The market appears to be lacking any fresh, bullish catalyst currently, and the increasingly hawkish tone coming from central banks is not helping either.

 

The U.S. Federal reserve recently raised interest rates again, and has thus far stuck with its forecast for another rate hike before the end of the year. Other central banks have also begun talking about normalizing monetary policy, with even the ECB sounding more hawkish than any time in recent memory.

 

Although hawkish rhetoric has, and may continue to weigh on gold prices, you have to wonder if perhaps policy makers may be getting a bit ahead of themselves. After all, 2016 was supposed to see four rate hikes from the U.S. Fed but only saw one. Could such a scenario be seen again?

 

Yes- economic growth has been on the rise. Yes-stocks are near all-time highs and could keep moving higher. Yes- risk appetite seems to be quite robust.

 

But…

 

The economy remains on some less than solid ground. Some key measures have shown strong improvement while others have simply shown little to no real improvement. Perhaps most important; inflation remains to be seen.

 

The lack of inflation could potentially allow the Fed and other central banks to keep their feet on the gas pedal longer than currently anticipated. You could also make the argument that these banks are raising rates only to have the flexibility to lower them again later.

 

Fed Chairwoman Janet Yellen will be giving her semiannual testimony before the House Financial Services Committee this week. Although the subject of inflation may be addressed, investors will likely be focused on the Fed’s concerns over rising asset prices and stubbornly low treasury yields. The question may be whether or not the central bank is ready to take action to prevent any further overheating. Given the market’s upward trajectory, however, it may take some very harsh rhetoric from the central bank to derail the equities rally at this point.

 

The current geopolitical landscape, while quiet right now, has the potential to have a significant impact on global markets. North Korea, in particular, is a problem that is not going to simply go away. Any further escalation in tensions could fuel a stock market sell-off and broad flight to safety. Ongoing domestic issues in the U.S. could also drive risk aversion, as investors may begin to lose patience regarding new legislation for health care, tax reform and fiscal spending.

 

The bottom line is that the current state of quiet is not likely to continue indefinitely. Volatility may begin to rise, and as it does it may fuel capital outflows in risk assets while stoking inflows into perceived safe haven assets like gold.

 

Any dips in gold from current levels may potentially be viewed as a buying opportunity, and the market could possibly be setting up for a major rally once the aging bull market in stocks has run its course.

 

Ms. Yellen’s testimony this week will likely be the main driver for price action in the gold market, and could potentially cause a major shift in investor sentiment. 

The Week Ahead In Gold

/0 Comments/in , /by

Markets are likely to pick up this week where they left off last, and light holiday trading volumes could potentially exaggerate buying or selling pressure. U.S. markets will be closed on Tuesday in observance of the Fourth of July Holiday, and many traders and investors may be vacationing this week.

 

The gold market has been seeing some steady selling pressure in recent trade, and that pressure looks set to continue this week. As long as stocks remain on the offensive, the yellow metal may have a difficult time making any significant upside headway.

 

Although the path of least resistance remains higher in equities, the stock market has been showing some signs of weakness. This is significant, as a reversal in stocks could potentially be the next major bullish catalyst for gold.

 

Ongoing weakness in crude oil is likely to take a toll on stocks, as the energy sector is often the leader. A move back down to the $40 per barrel level or beyond could have a significant impact on global equities, while also having the potential to move currency markets.

 

Speaking of currency markets, the dollar index has also been in a downward spiral and remains in a firm downtrend. Further weakness in the greenback could also be bullish for gold and other dollar-denominated asset classes. If recent dollar declines can be attributed to a lack of policy progress by the Trump administration, the currency could continue to see pressure as any passage of key pieces of legislation such as health care and fiscal spending could be further down the road than originally anticipated.

 

Outside of the geopolitical sphere, investors will remain focused on the economy and the Fed. Although the central bank recently raised interest rates again, more and more analysts appear to be questioning the Fed’s plans going forward. The central bank stuck to its guns regarding plans for another rate hike this year, although there are numerous potential issues that could cause the Fed to stand pat.

 

With the odds of a stock market reversal seemingly increasing by the day, and the possibility of the next recession also on the rise, the Fed may remain very accommodative for the foreseeable future. Not only may the Fed remain supportive, but the notion of the central bank taking rates back down to zero is certainly plausible if markets take a major turn for the worse.

The gold market has some issues working it against it currently, but it also has numerous issues that could fuel inflows into it. Recent range-bound price action in gold could be indicative of a market that is readying for a major breakout, and the longer the market goes sideways the more significant any breakout could be.

 

Given a relatively weak economic backdrop, a dovish Fed and the many geopolitical issues currently being seen around the globe, our money would be on an upside breakout in the months and quarters ahead. In fact, gold could be getting ready to embark on a multi-year bull run as stocks may be approaching the beginning of a protracted bear market.