The Week Ahead In Gold

/0 Comments/in , /by

Risk aversion seems to be the predominant theme as the new trading week gets off to a poor start. Stocks are getting hammered in early action on Monday, as fears over a full-blown trade war take a toll on investor sentiment. The continuing escalation of tensions over trade between the U.S. and China-the world’s largest and second largest economies-is making investors nervous, and could even lead to recession.

 

Over the weekend, U.S. President Donald Trump suggested plans for curbing Chinese investment in technology companies, while also blocking additional technology exports to China. The initiatives are set to be announced by the end of the week, and represent an even more aggressive stance by the U.S. over trade.

 

Trump has also recently threatened to implement a 20 percent tariff on cars built in the EU. Like China, the EU has said that it will respond in kind.

 

There does not appear to be an end in sight, and the issue of trade is likely to be a major factor in global financial markets in the months and even years ahead.

 

Although the battle over trade has not yet spurred safe haven buying in gold, an ongoing exodus from stocks will likely at some point fuel buying in the metal and other alternative asset classes.

 

Speaking of recession: Some analysts have recently suggested that the chances of recession by 2020 are increasing. Major tax cuts and fiscal spending in the U.S. have definitely had an effect on economic output, but some question how long the effects will last. Rising interest rates along with fading stimulus from spending and tax cuts could become a major drag on the economy in the months ahead. An ongoing trade war or even collapse of NAFTA could greatly exacerbate economic headwinds, and the Fed could once again find itself having to cut rates by 2020.

 

The next recession could be significantly harder for the Fed to combat. Although the central bank will look to its typical tools to fight the slowdown, one has to wonder how effective those tools may be this time around. The Fed Funds rate could peak below three percent in the current tightening cycle, and the central bank may not have enough room to create the “shock and awe” effect of sharply lower rates. The eventual lowering of rates again seems to be a great bet, but the Fed could also have to resort to additional measures such as QE in order to get the economy back on track.

 

The gold market remains in a downtrend, and investors appear to be exercising patience in looking for buying opportunities. Because the market has shown little upside in recent weeks, investors may be operating under the assumption that even lower prices will be seen before the market reverses course.

 

The dollar seems to be playing a major role in gold’s lack of upside in recent months, and the yellow metal could remain vulnerable until there is a significant shift in dollar sentiment. Despite the dollar’s ongoing strength, however, some retail buying has begun to emerge around current levels. With physical premiums at historically low levels currently, now may be the ideal time for patient long-term investors to add to holdings.

The Week Ahead In Gold

/0 Comments/in , /by

Stocks are not getting the new trading week off on the right foot, as concerns over the potential for a global trade war have once again resurfaced in a big way. On Friday, U.S. President Donald Trump announced tariffs on $50 billion of Chinese imports. In response, China said it would target high-value U.S. exports.

 

This tit-for-tat surrounding trade is seemingly putting the world’s two largest economies on a collision course that could result in an all-out trade war. Such a scenario could have significant consequences for the global economy and financial markets, and increasing tensions over trade could not come at a worse time.

 

China’s economy had gotten off to a solid start in 2018, and in many ways has acted as a buffer for global growth. The Chinese economy has, however, been showing some signs of slowing in recent data. Rising tensions over trade may exacerbate this slowdown, which policy-makers may be less likely to combat with previously seen stimulus measures. The result could potentially be a couple of pints shaved from each nation’s GDP this year and next. Perhaps more importantly, however, the uncertainty surrounding trade could damage investor and business confidence, slowing cross-border investment in the process.

 

Gold is trading not far from its lowest settlement of the year, and has remained range-bound for some time now. The metal’s lack of upside comes at a time when seemingly more and more analysts are sounding the alarm bells over increasingly high stock valuations, especially in high-flying tech names. Although stocks have shown a great deal of resiliency in recent months, investors have to be wondering just how much upside could be left in the tank.

 

Increasing economic and geopolitical headwinds are likely to become an increasingly significant factor in global financial markets in the weeks and months ahead. Accelerating inflation, trade tensions, higher oil and rising risks of recession may all weigh on economic activity and fuel and eventual reversal in global stocks and risk assets. Add to this the potential for a further and perhaps significant shakeup in the EU, and you have a recipe for trouble.  You could make the argument that the risk/reward in stocks currently is not favorable, and now may be the time to consider diversifying away from equities.

 

Whether it comes next week, next month or next year, the next major stock market collapse could wipe out billions in shareholder value. Just as it did in the tech bubble of the early 2000s, and even during the financial crisis of 2008/2009, the onslaught could catch many unknowing investors off-guard, causing them significant declines in wealth that could take years, possibly even decades to recoup.

 

A great asset rotation could be seen in the months ahead. As investors become more skeptical over global growth and the geopolitical landscape, asset classes that have lagged could potentially outperform. Gold could stand to benefit greatly from such a scenario, and the next major, cyclical bull market in the metal may very well get started.

The Week Ahead In Gold

/0 Comments/in , /by

Where to begin? This week is filled with events that have the potential to be market-moving, and investors will likely need to buckle their seatbelts as the trading week gets under way. A G7 meeting over the weekend, as well as a critical meeting between U.S. President Trump and North Korean Leader Kim Jong-Un to take place on Tuesday will likely dominate financial media headlines. As if that is not enough, both the U.S. Fed and the ECB will be meeting later in the week to make key policy announcements.

 

The G7 meeting comes at a time when geopolitical tensions are high. President Trump has already indicated a willingness to walk away from the group, and the issue of global trade is likely to become a major factor in global financial market stability. Mr. Trump has already expressed his displeasure with the state of trade negotiations, and is likely to leave the summit early. The issue of trade is a major source of tension, and tempers could flare further if no meaningful progress is made.

 

The meeting between President Trump and Kim Jong-Un is both historic and nerve-wracking. The ongoing nuclear ambitions of North Korea have been a major source of global geopolitical angst in recent months, and this meeting has the potential to put some key issues to bed. Both leaders, however, have shown a tendency to change their opinions quickly, and the possibility of anything lasting coming from the meeting is by no means a done deal. If the meeting is seen as being constructive, it could lead to increasing risk appetite and higher stocks. If the meeting is seen as being a “dud,” global markets may see increasing risk aversion and a sell-off in stocks.

 

The U.S. Fed is widely expected to raise interest rates again this week. Although another hike in rates comes as no surprise, investors will likely be very interested in the central bank’s commentary. The central bank has already stated that it is comfortable letting inflation run slightly above its 2% annual target, and its opinion on the state of the economy could provide clues to its plans going forward.

 

On Thursday, the ECB is also set to announce its plans regarding monetary policy. The ECB is expected to discuss an end to its bond-buying program, although such an announcement may come at a challenging time. Just as the central bank is looking to throttle back on its stimulus measures, fresh worries over the health of the EU and the euro are being fueled by recent developments in Italy.

 

Italy will be holding elections later in the year that have the potential to bring major changes to the nation. As one of the EU’s largest economies and its largest debtor, any major changes in the nation’s politics could have significant consequences for the region and its shared currency.

 

Investors will likely pay close attention to any fresh developments in the region, and if Italy were to eventually decide to leave the union, who knows what might be the next domino to fall.

 

Stocks have been able to maintain recent strength, but with numerous major economic and geopolitical issues now making waves, the bull market’s days could be numbered. Gold and other risk assets could potentially stay relatively range-bound until risk assets begin to falter.

The Week Ahead In Gold

/0 Comments/in , /by

The gold market may simply be in a period of treading water until the next Fed meeting later this month. The market has shown a tendency to remain subdued or even lower ahead of such announcements on monetary policy, and then rallying once the decision on rates has been made public.

 

The markets are pricing in a June rate hike from the central bank, with the next hike likely not coming until October or November. The Fed has also alluded to the fact that it may already be close to a rate level that is neither overly expansionary nor overly aggressive. Although the current rate cycle is not likely to see rates get anywhere near levels seen in previous tightening cycles, rates could potentially end up staying at levels that are even lower than expected. In other words, it appears that the era of low rates may not be over, but may be likely to continue for some time. Such a scenario could potentially be highly bullish for gold and other hard assets.

 

Investors continue to cheer on last week’s non-farm payrolls data which showed the U.S. added a solid 223,000 jobs in May. Current enthusiasm may be tempered quickly, however, if geopolitical tensions deteriorate further.

 

Risk appetite remains strong currently in spite of several negative influences. Stock investors have thus far been able to shrug off recent developments in Italy as well as new developments in global trade. Both could be a serious cause for concern and could potentially rattle global financial markets.

 

Italy was unable to form a new government, and will now hold elections later in the year. The nation’s anti-establishment parties seem to be gaining further traction, and if elected could push for the nation to withdraw from the EU. Needless to say, as one of the region’s largest economies-and the largest debtor nation-an Italian exit from the union could have widespread and significant implications for global financial markets. Investors are likely to keep this in mind over the next few months, as a flare-up in tensions could send capital pouring into perceived safe haven assets.

 

Recent tariffs imposed by U.S. President Donald Trump are also making waves. The U.S. last week announced it would impose a stiff 25% tariff on imported steel from Canada, Mexico and the EU. It would also impose a 10% tariff on imported aluminum.

 

The administration used a little-known law that permits the use of tariffs to counter a national security threat. Canadian Prime Minister Justin Trudeau called the move “insulting and unacceptable.” Canada has responded by imposing tariffs of its own on a variety of goods, and the confrontation could hurt consumers on both sides of the border.

 

The move also drew criticism from French President Emmanuel Macron, who reportedly stated “economic nationalism leads to war.”

 

Any further escalation in the war on trade could send shockwaves through global markets. With the U.S. apparently ready to take a hardline approach, investors may become increasingly cautious and demand for perceived safe havens asset classes may see some sharp gains in the weeks and months ahead.

 

Investors continue to cheer on last week’s non-farm payrolls data which showed the U.S. added a solid 223,000 jobs in May. Current enthusiasm may be tempered quickly, however, if geopolitical tensions deteriorate further.

The Week Ahead In Gold

/0 Comments/in , /by

The gold market may simply be in a period of treading water until the next Fed meeting later this month. The market has shown a tendency to remain subdued or even lower ahead of such announcements on monetary policy, and then rallying once the decision on rates has been made public.

 

The markets are pricing in a June rate hike from the central bank, with the next hike likely not coming until October or November. The Fed has also alluded to the fact that it may already be close to a rate level that is neither overly expansionary nor overly aggressive. Although the current rate cycle is not likely to see rates get anywhere near levels seen in previous tightening cycles, rates could potentially end up staying at levels that are even lower than expected. In other words, it appears that the era of low rates may not be over, but may be likely to continue for some time. Such a scenario could potentially be highly bullish for gold and other hard assets.

 

Investors continue to cheer on last week’s non-farm payrolls data which showed the U.S. added a solid 223,000 jobs in May. Current enthusiasm may be tempered quickly, however, if geopolitical tensions deteriorate further.

 

Risk appetite remains strong currently in spite of several negative influences. Stock investors have thus far been able to shrug off recent developments in Italy as well as new developments in global trade. Both could be a serious cause for concern and could potentially rattle global financial markets.

 

Italy was unable to form a new government, and will now hold elections later in the year. The nation’s anti-establishment parties seem to be gaining further traction, and if elected could push for the nation to withdraw from the EU. Needless to say, as one of the region’s largest economies-and the largest debtor nation-an Italian exit from the union could have widespread and significant implications for global financial markets. Investors are likely to keep this in mind over the next few months, as a flare-up in tensions could send capital pouring into perceived safe haven assets.

 

Recent tariffs imposed by U.S. President Donald Trump are also making waves. The U.S. last week announced it would impose a stiff 25% tariff on imported steel from Canada, Mexico and the EU. It would also impose a 10% tariff on imported aluminum.

 

The administration used a little-known law that permits the use of tariffs to counter a national security threat. Canadian Prime Minister Justin Trudeau called the move “insulting and unacceptable.” Canada has responded by imposing tariffs of its own on a variety of goods, and the confrontation could hurt consumers on both sides of the border.

 

The move also drew criticism from French President Emmanuel Macron, who reportedly stated “economic nationalism leads to war.”

 

Any further escalation in the war on trade could send shockwaves through global markets. With the U.S. apparently ready to take a hardline approach, investors may become increasingly cautious and demand for perceived safe havens asset classes may see some sharp gains in the weeks and months ahead.

 

Investors continue to cheer on last week’s non-farm payrolls data which showed the U.S. added a solid 223,000 jobs in May. Current enthusiasm may be tempered quickly, however, if geopolitical tensions deteriorate further.