January 2019 - Border Gold

The Week Ahead In Gold

January 21, 2019/in Commentary, Market Updates, Market Updates/by Border Gold Corp.

The gold market lost ground in light trade Monday as markets were closed in observation of the Martin Luther King Holiday. Driving price action across markets was the latest economic news out of China.

On Monday, China reported the slowest pace of economic growth since 1990. The world’s second-largest economy reported a growth rate of 6.6% for 2018. The fourth quarter was especially trying for the country as growth slowed to a pace of 6.4% from Q4 last year.

The ongoing U.S./China trade war is certainly having a clear effect on China’s economy. Chinese exporters were forced to lay off employees and the damage control doesn’t end there. Companies also reported slashing capital expenditures, cutting prices and even cutting wages. The squeeze on corporate profits and employment could potentially cause the slowdown to deepen further and some analysts are of the opinion that economic conditions may be far worse than the data suggests.

Further evidence of a drastic slowdown in China could impact markets this week and beyond. Stock and commodity prices could both come under pressure as Chinese demand weakens further and as risk appetite fades.

Outside of China, the U.S. is dealing with plenty of issues of its own that could drive market volatility. The U.S. economy has also shown signs of slowing, and the manufacturing sector has become a particular source of concern. A downtrend has been established in manufacturing across various regions as the effects of the trade war become increasingly apparent. To make matters worse, the Federal Reserve has thus far stuck to its planned rate hikes and balance sheet contraction.

The Fed has recently begun to sing a different tune, however, as the slowdown gathers steam. Although the Fed still has two more rate hikes penciled in for 2019, traders are betting that no hikes will take place. In fact, some are even wagering that the central bank could be forced to cut rates before the end of the year.

Recognizing the recent string of weakness, the Fed will follow the data before making any further decisions. If the Fed elects to keep rates at current levels, or to begin cutting again, the effects on the dollar could be substantial. Dollar strength in recent months has been a primary obstacle to higher gold prices and any significant weakness in the greenback could pave the way for the next major leg up in gold.

As a major consumer of gold, Chinese weakness has the potential to weigh on the metal. That weight may be counterbalanced, however, by a weaker dollar and rising risk aversion. The gold market may also begin to see fresh inflows if equity markets resume their recent downtrend. Although stocks have posted some solid gains in recent sessions, the market is now at a large resistance area that could potentially act as a key turning point.

After making one significant attempt to crack key upside resistance, the gold market has pulled back. Although buyers have been quick to jump in and buy dips in recent weeks, the metal’s failure to make a fresh high may make the market increasingly vulnerable to a larger sell-off.

The Week Ahead In Gold

January 14, 2019/in Commentary, Market Updates, Market Updates/by Border Gold Corp.

The gold market will likely pick up where it left off this week. The yellow metal has been lingering near the key $1,300 level and has thus far made one serious attempt at a breakthrough.

The market has several key factors currently working in its favor, one of which is a recent shift in thinking at the Fed. Several Fed officials spoke last week (each with a seemingly different opinion) and the minutes from the latest Fed policy meeting were released. Of note is the fact that some members felt a December rate hike was not necessary and that the central bank should hold off on further tightening.

Although the Fed followed-through with its plans for a final hike in 2018, the central bank has adopted an increasingly dovish tone in recent weeks. The central bank currently has two further hikes penciled in for 2019, though that could change. Traders are currently betting on zero rate hikes this year, with some even suggesting that the Fed could end up cutting rates again this year.

Inflation data released on Friday showed consumer prices declining by .1% on a month-over-month basis and rising by 1.9% on an annual basis. These figures may work in gold’s favor. Tame inflationary pressures may allow central banks in the U.S. and elsewhere more wiggle room in terms of policy tightening and could lead to a considerably-less hawkish outlook.

The Fed will now almost certainly take no action until the second quarter at the earliest. The central bank will take a wait-and-see approach over the next several weeks. Given the recent string of poor manufacturing data in the U.S. and worrisome figures coming out of China, the potential for further equity market declines and volatility exists. Any further downside in stock markets or sharp increases in volatility could give the Fed further reason to remain on hold.

The gold market will also be watching the dollar this week. The greenback recently touched a three-month low and could remain under pressure. Investors will likely pay close attention to the Fed, looking for any clues as to the timing and extent of any further tightening. If the central bank decides to adjust its current outlook from two hikes to one, or even none, the dollar could see significant selling pressure.

Of course, these issues will need to be dealt with as the U.S./China trade war continues and as the U.S. Government remains shutdown. Although there has been some recent optimism over trade negotiations, there has thus far been nothing concrete that investors can “take to the bank.”

The ongoing government shutdown will become increasingly problematic for the U.S. With the newly-democratic House of Representatives willing to stand their ground while President Trump has insisted that he will not budge on his position, the potential for geopolitical fireworks may be on the rise.

Given the number of unknowns and the various risks currently being faced by global markets, equities and risk assets may continue to see decreasing inflows. As this asset rotation continues to gain steam, gold may finally have the horsepower to punch through key resistance and embark on a fresh leg higher.

The Week Ahead In Gold

January 7, 2019/in Market Updates/by Border Gold Corp.

As investors come back from the holidays, the next several sessions could potentially set the tone for the weeks and months ahead. Investors may look for stocks to stabilize after heightened volatility in recent weeks and market participants will be keeping their ears open for any potential clues from the Fed about their monetary policy plans going forward.

Stocks have seen some upside in recent sessions although it is too early to tell if the recent rally is sustainable. On Friday, the U.S. reported blockbuster job creation as the country added 312,000 jobs in December. The jobs figure blew the doors off estimates which were looking for less than 200,000 jobs created.

The employment data gave investors reason to buy stocks and appetite for equities increased further following some comments from Fed chief Jerome Powell. Although the non-farm payrolls report is a key piece of data, much of Friday’s massive rally could likely be attributed to an increasingly dovish Fed. Powell indicated that the central bank is willing to adjust its current policy and markets appear to be breathing a sigh of relief as the New Year gets underway.

The strong jobs data bucked the trend of recent disappointment. Key areas of manufacturing have been showing signs of slowing and the housing market continues to show further weakness. Consumer confidence recently sank to a six-month low and the services sector is also an area of concern. In addition to these and other local concerns, the data stream coming out of China remains worrisome.

The question now may be whether the strong jobs data is enough to keep the Fed on a more hawkish trajectory in order to prevent accelerating inflation. Markets are currently expecting no rate hikes for 2019 and are even pricing in a small chance for a rate cut. The Fed is in a very tricky position and could potentially reignite recent volatility if it takes a more aggressive stance.

Risk assets are also getting a boost currently from renewed optimism for a U.S./China trade deal. U.S. officials kicked off a round of two-day talks in Beijing on Monday and there are hopes that the discussions can build upon the framework set by President Trump and President Xi Jinping.

Despite some of the recent positives, many investors remain highly skeptical. Some analysts have suggested that the recent break from stock declines is simply the “calm before the storm” and that the most serious downside is yet to come.

It is also noteworthy that the democrats have now taken control of the U.S. House of Representatives. This has the potential to act as a major market wildcard as the U.S. geopolitical scene is likely to heat up even further.

In a sign of underlying market strength; the gold market has given up very little ground even as stocks have rallied. Gold remains within striking distance of key resistance around the $1,300 area and buyers appear happy to step in and buy any dips.

The gold market will need to see recent gains extended in the sessions ahead, however, or will become increasingly vulnerable to a more significant sell-off. That being said, the bulls may be simply biding their time until the next major wave of volatility hits risk assets.