The Week Ahead In Gold

/0 Comments/in , /by

U.S. markets are closed Monday this week in observance of the Memorial Day Holiday. Traders and investors will be back in full swing on Tuesday, however, as the rest of the week is packed with key economic data.

 

Key economic reports set for release this week include Consumer Confidence, Dallas Fed Manufacturing, ADP Employment, GDP, Weekly Jobless Claims, ISM Manufacturing, Construction Spending and more. The biggest data point will likely be Friday’s jobs report for May. Consensus estimates see 185,000 jobs added with the unemployment rate steady at 3.9%.

 

The Fed is set to hike interest rates again in June, and only a significant miss in the jobs report could potentially give the central bank reason to reconsider another move in the weeks ahead.

 

The Central Banks recent commentary was viewed by many analysts as being a bit more on the dovish side of the ledger, even though the central bank looks likely to hike rates four times this year rather than the previously anticipated three. Comments by some Fed officials seems to suggest that the central bank could be close to reaching an equilibrium-the point at which rates are neither overly expansionary nor overly constricting-and the high point seen in the current rate cycle could be reached sooner than expected.

 

In addition to the data stream this week, investors will be on the lookout for any new developments on the geopolitical front. The cancellation of the U.S./North Korean summit seemed to bring back a bit of the safe haven bid, although it is now looking increasingly likely that the summit may be back on at some point. Without any fresh, bullish geopolitical catalysts, the gold market may simply look to tread water.

 

Recent data from the CFTC showed that net long positions have declined to a 10-month low. Although this data may appear bearish at first glance, it is often used as a contrarian indicator. With relatively few longs in the market currently, any bullish developments could attract a significant amount of buying interest and potentially fuel a sharp and significant price rise.

 

With so much data set for release this week, the dollar index could also be watched closely. The strength seen in the dollar in recent weeks has played a major role in gold’s lack of upside, and further gains could weigh on prices further. On the other hand, any significant misses in key data points could let some of the wind out of the dollar’s sales, and this could reinvigorate the gold bulls.

 

Not only could domestic data fuel price action in the dollar this week, buy fresh developments in Italy could also potentially impact the dollar and the euro. Italy’s president has set the country on a path towards fresh elections, and these elections could determine the country’s place in the EU going forward. With some of the anti-establishment parties gaining more traction, financial markets may become increasingly nervous as elections approach in the second half of the year.

 

The potential for Italy to leave the EU could present a very complex problem for EU policy-makers as they look to wind down there QE program in September. As has already been seen before with Greece, any major problems in the EU or the notion of the union breaking apart could fuel significant risk aversion and a flight to perceived safety assets.

The Week Ahead In Gold

/0 Comments/in , /by

The gold market continues to see some selling pressure, and is now trading around a five month low. Recent dollar strength has likely been a primary driver of gold weakness, while higher stocks and robust appetite for risk are also likely playing a big role as well.

 

This week, investors will monitor ongoing trade negotiations with China, as well as some key pieces of economic data. Wednesday’s release of the latest Fed meeting minutes may be the most heavily scrutinized data point of the week. It has been looking more and more like the central bank will need to hike rates four times this year rather than the previously anticipated three. The minutes could act as confirmation that the Fed plans a more aggressive stance towards monetary policy, and could potentially be market-moving.

 

A more aggressive Fed could keep the recent dollar rise going, although just how much the currency has left in the tank is unclear. The dollar has been climbing along with numerous commodities, and at some point, the negative correlation between the dollar and commodities will likely take hold again. Given increasing deficits, lower tax revenues and other issues, the dollar could very well stall out and reverse course.

 

Rising treasury yields and crude oil prices will also remain an area of investor focus. The yield on the benchmark ten year note is holding steady above the 3% level, trading at 3.07% on Monday. The notion of higher yields has given some stock investors reason for pause in recent months, but apparently yields have not yet risen high enough to put a significant dent in stocks or risk appetite.

 

The idea of the ten year hitting a 4% yield this year has been gaining some traction, and at that level may prove to be a much more significant hurdle for higher stocks.

 

Oil has been steady and maintaining trade over the $70 level. Higher oil prices could be considered bullish for gold, as rising prices are considered inflationary. The notion of $100 per barrel oil seems to be picking up steam, and if oil continues its recent ascent it is likely to keep a solid floor under gold and other commodity prices.

 

It was reported that U.S. Secretary of State Mike Pompeo recently suggested that the U.S. could impose the “strongest sanctions in history” against Iran if the country does not make significant changes to its foreign and domestic policies. The U.S. recently pulled out of the 2015 Iran nuclear deal, and is taking a more hardline approach to the nation. Sanctions could have a significant impact on the oil market, and may also keep upward price pressures going.

 

Although the gold market has been under pressure in recent weeks, the fundamentals still appear to look strong. Increasing inflation, the geopolitical landscape and increasing odds of the next recession may all serve to keep prices from falling much further.

 

Outside of any major geopolitical events, the gold market will likely start to see a more significant and sustainable rally once the bull market in stocks has run its course. With asset reallocating already underway, this could be coming sooner rather than later.

The Week Ahead In Gold

/0 Comments/in , /by

Although Monday will be a slow day in terms of economic data, financial markets will have plenty to digest the rest of the week. Investors will get the latest readings on Retail Sales, Empire State Manufacturing, Industrial Production, Housing Starts, Weekly Jobless Claims and more. There will also be several Fed officials speaking this week at various engagements, including James Bullard, Neel Kashkari and Lael Brainard.

 

Investors may, however, be most concerned with U.S./China trade negotiations that are set to begin on Tuesday. In addition, the U.S. could reach a decision on the NAFTA Agreement with Mexico this week.

 

The issue of global trade has been, and will likely continue to be at, the center of the marketplace’s attention. It was not long ago that the notion of a full-blown global trade war roiled financial markets, sending volatility to the highest levels seen in some time. Although markets have been calmer since, any hawkish rhetoric on trade still has the potential to set investors into panic mode, fueling higher volatility and selling across risk assets.

 

The gold market has largely held its ground recently even as stocks once again show signs of renewed strength. The stock market may, however, be considerably more fragile at this point. Like a house of cards, stocks and risk assets could come toppling down quickly on any number of potentially bearish influences. Increasing tensions over trade, rising inflationary pressures and upcoming midterm elections could all potentially fuel volatility, causing investors to seek out alternative asset classes.

 

Stocks may be heading right into some serious headwinds, and once things start to go south, gold and other perceived safe haven assets could see significant inflows.

 

Investors will also continue to watch the dollar this week, which recently traded at a 4.5 month high. The greenback has seen a good bounce in recent weeks, taking some of the wind out of gold’s sails in the process. The idea of a significant and sustained rally in the greenback, however, is not likely to happen. A cautious Fed, higher deficits and ongoing geopolitical turmoil may all work against the dollar, keeping any sizable rallies at bay.

 

The greenback has been a major driver of price action in gold and other hard assets in recent months, and will likely continue to exert a heavy influence on gold and other dollar-denominated commodities. That being said, if or when the dollar does turn down once again, the bears could have enough to push prices to multi-year lows. Such a move could potentially send gold prices back towards previous all-time highs.

 

Finally, in addition to stocks and the dollar, the crude oil market is also worth watching. Prices have traded above the $70 per barrel level for the first time in years, and have continued to show strength. With Venezuelan output declining, the U.S. pulling out of the Iran Nuclear Deal and a June OPEC meeting on the horizon, prices could remain steady to higher. Stronger crude prices are inflationary, and if prices continue their recent ascent other commodity prices are likely to move higher as well.

The Week Ahead In Gold

/0 Comments/in , /by

Gold prices may see some pressure to start out the week, as the effects of a stronger dollar continue to take a toll. Just how much the dollar has left in the tank remains unclear, as soaring deficits and geopolitical issues could weigh on the currency.

 

Despite the recent dollar strength, the commodity space is looking more and more bullish and could be embarking on a commodity “super cycle.”

 

Crude oil has been a leader in the space in recent months, and will likely dominate much of the headlines this week. Crude oil is sitting around a 3.5 year high, with Nymex crude oil trading above $70 per barrel. Brent crude is also stronger, with the bulls setting their sights on $76 per barrel. Higher crude oil prices are indicative of inflation, and could help “inflate” other commodity prices as well.

 

The oil market could see some volatility this week, as a deal struck with Iran in 2015 to curb its nuclear ambitions may not be renewed. If the deal is not renewed, the U.S. could reapply sanctions against Iran, dramatically cutting Iranian oil exports. This could cause a sharp price spike in the oil market that could potentially lift the price of gold and other commodities as well.

 

Investors will continue to monitor the data stream closely this week. The markets have seemingly priced in another three rate hikes for 2018, while the Fed has alluded to only two more rate increases. Last week’s non-farm payrolls data was solid, with the unemployment rate dipping to 3.9 percent. The data did not, however, show any wage growth as wages rose just .1% month-over-month and 2.6% year-over-year. The lack of wage growth could keep the central bank leaning to the dovish side of the ledger and could keep the Fed sticking with its original plan for three hikes in 2018.

 

This week, investors will get the latest readings on the Consumer Price Index as well as the Producer Price Index. These data points will likely be the highlight of the week, and could potentially put to bed the idea of a fourth hike this year. On the other hand, if the gauges come in hotter than expected, it could give the Fed reason to become more aggressive and could cement an additional hike, perhaps taking place next month.

 

Despite some of the recent ups and downs, it is important to remain focused on the big picture. The gold market has been building a strong base now, for the last several years. The wider the base, the higher prices may potentially go. The current backdrop of sovereign debt issues, aging stock bull markets, weaker fiat currencies and numerous geopolitical issues could set the stage for a significant and protracted run higher in gold and other commodities. It would seemingly not be a question of “if” but rather “when.”

 

That being said, any dips in the price of gold should be viewed as buying opportunities. The commodity bull market is just getting started, and like the recent bull market in equities, could see prices move higher for several years or more.