The gold market is likely seeing some pullback after recent gains as the yellow metal gears up for another run towards fresh all-time highs. The metal has traded largely sideways for a few weeks now, and the longer it moves sideways the more significant the next leg higher could potentially be.

It is difficult, if even possible, to come up with any bearish issues for the gold market and the metal is likely to continue to be bought aggressively on any dips in price that do develop. The Fed’s recent decision to allow inflation to run above its desired 2% target means that interest rates will stay low for some time to come. This ultra-low interest rate environment is bullish for gold, which tends to outperform as rates decrease.

The stock market could hold the key to the yellow metal’s next rally. Stocks have been strong in recent action as investors have become increasingly dependent on central bank action to keep equities on the offensive. Despite the Federal Reserve holding rates at zero and pumping the economy full of liquidity through QE, however, a day may come when investors recognize and acknowledge the difficulties being faced by the global economy. This recognition could potentially lead to a major pullback in equity markets, which currently sit near all-time highs. Such a pullback in stocks could send additional capital flowing into the gold market and other asset classes and could lead to fresh all-time highs for the yellow metal.

The Federal Reserve’s actions could keep ongoing pressure on the U.S. Dollar as well. The dollar index has struggled to maintain any upside above the 93 level, and the euro could have further room to run higher against the greenback. A weaker dollar index could keep buying pressure in gold elevated, as the weaker currency makes gold less expensive for foreign buyers.

The combination of a slowing global economy, weaker dollar, accommodative Federal Reserve and uncertainty over the upcoming U.S. Presidential election may all keep the yellow metal rising while limiting any downside dips in price. The gold bulls are in control of the market on the daily chart, with an uptrend still in place that has lasted the last five months or so. The bulls will target the September highs near $2000 per ounce, while the bears are likely to target support at $1900 per ounce.

Despite all the bullish issues backing the gold market currently, there are some other factors that could lead to a pullback or even reversal in trend. Hopes for a COVID-19 vaccine have intensified in recent days and have fueled the stock market’s upside. If a vaccine is developed and is brought to market, it could potentially provide a shock-and- awe effect on global markets that would likely send stocks higher and safe haven asset classes lower.

The major theme for the week is the U.S. Federal Reserve meeting set to conclude on Wednesday afternoon. The announcement on rates will be followed by a press conference with Fed Chief Jerome Powell who may provide additional clues on the central bank’s plans and thinking.

The gold market is slightly higher in early Monday action as the bulls look to regain control of the market. The market has quite possibly entered a longer consolidation phase in which prices remain mostly sideways for an extended period. A downturn in risk aversion is also having an effect, as investors look past the raging viral pandemic and hope for a credible vaccine to be brought to market sooner rather than later. Whether a vaccine is discovered or not, it remains unlikely that nations will enter into another full-scale lockdown to combat the spread of the virus.

Outside markets for gold today are in a bullish posture. Crude oil is moving higher, near $43.50 per barrel, while the U.S. Dollar index moves lower, maintaining price action near a two-year low. The weaker dollar has likely been a major contributor to gold’s upside in recent months, and a further downside breakdown in the greenback could set the stage for a significant run higher in gold, silver and other metals.

The dollar certainly has a variety of forces working against it currently. Not only is the U.S. way, way in debt, but the Federal Reserve is now keeping interest rates at zero once again, while printing an unlimited amount of dollars through QE. Although a weaker dollar may benefit the government as it pertains to debt payments, it is not beneficial to the average American or user of the currency. As the dollar declines in value, it tanks more and more of them to purchase everyday goods and services. This fuels the effect of making things increasingly expensive, eroding discretionary incomes in the process. Not only that, but even net investment returns are eroded as they cannot escape the negative effects of a weaker dollar.

As Americans and users of the dollar feel the pinch from a decline in value, it can have a significant, negative impact on the economy as a whole. As everyday goods and services become increasingly expensive, people will begin to look to save money, spending less in the process. This downturn in spending can weigh heavily on the economy, as the economy is primarily driven by consumer spending. This reduction in household spending can, in turn, lead to an economic recession if severe enough.

Not only is the greenback being forced to deal with the negativity of zero percent rates and QE, but it must now also contend with a change in the Fed’s thinking. Last week, the central bank announced that it would shift its inflation mandate and would look to see inflation rise above its desired 2% target for a period of time. Rising inflation, combined with all the other bearish dollar issues, could be enough to send the greenback on a fresh and significant leg lower. This dollar downside could fuel a sharp rise in some dollar-denominated asset classes, including gold and silver, and could become the primary catalyst for $3000 or $5000 per ounce gold prices.

The gold market has maintained strength, despite a recent pullback in price, and appears to be getting ready for another run to the upside. The yellow metal has several important issues currently working in its favor, including unlimited quantitative easing measures and the potential for a sharply slower economy as the COVID-19 pandemic rages on.

The gold market does appear to be getting quite comfortable above the psychologically important $2000 per ounce level, and it may simply be a short period of time and consolidation before the bulls stage another rapid run to the upside.

The weaker U.S. Dollar has been a primary catalyst for higher gold prices and could continue to serve as a key driver of investor demand. On Tuesday, the dollar traded down to a two-year low. The dollar’s weakness has been attributed to a few factors, but lower bond yields are likely the main catalyst for greenback downside. The U.S. Dollar index is getting dangerously close to falling below support levels. A decline below the May 2018 low around 92.24 could see the currency fall further, possibly reaching a swing low around the April 2018 low at 89.22.

Not only does the U.S. currency have to deal with ultra-low interest rates and unlimited quantitative easing, it must also deal with ongoing delays on the passage of additional U.S. stimulus measures. Delays to further stimulus could set the stage for a significantly slower third quarter in U.S. economic activity, and that weakness could keep downside pressure on the greenback.

As the dollar weakens, gold may also be seeing benefit from rising tensions between the U.S. and China, who happen to be the globe’s first and second-largest economies. The ongoing Coronavirus crisis has led to anger and distrust between the two superpowers and could even lead to a complete halt to trading negotiations. If talks were to be discontinued, the global stock market could potentially see significant selling, like what was seen months ago as COVID fears took hold, and gold could rise as additional investors seek out its perceived safety.

As if COVID-19, a slowing global economy and a worsening of U.S. and Chinese relations were not enough, the U.S. also has an upcoming presidential election that could send markets into a tailspin. It has been suggested by some that if democratic candidate Joe Biden were to win the presidency, stock markets could see a massive potential sell-off as investors look to go risk-off. It has also been suggested that a Trump victory could set the stage for fresh all-time highs in equities, despite the effects of the global pandemic. What many likely fear the most, however, is the uncertainty that could arrive with an election result that is contested. If Trump refuses to leave office, for example, the unknowns could fuel a sharp and significant decline in equity and risk asset prices. Much of that equity could, however, find its way into the yellow metal, driving prices further into all-time high territory.

The gold market has remained the topic of much speculation and excitement as prices have thus far maintained trade at or over the $1800 level for a few days. With the market now at a nine-year high, some are even asking about the potential for $5000 or even $10,000 gold prices.

Sharply higher gold prices from recent levels would seemingly suggest that an inflationary environment had taken over and that the inflation could be accompanied by significant political and economic unrest. If gold were to reach the $10,000 region, for example, it could be indicative of sharply higher prices for everyday goods and services. These substantially higher prices could keep the public from spending elsewhere, as their focus may simply be on survival. This could, therefore, result in a strong downward economic spiral that could take many years to recover from, if recovery is even possible.

If such a period of inflation, or stagflation, were to come to fruition in the U.S., it is highly unlikely that government personnel would put someone with the guts to put a stop to it in office. In other words, there likely will not be a second coming of Paul Volker, and the economy could be left to fight its own battles. Without strong assistance, however, that fight could continue for years or even decades.

As the U.S. fights the current and future economic slowdowns, it will almost certainly continue its path of holding interest rates at or close to zero while printing more money through QE. These actions will serve to weaken the dollar further and could keep the gold market on the offensive. This idea could be a major force behind gold’s recent upside and could keep the bulls out in force unless there is a major change to monetary policy.

In other news, U.S./Chinese relations are again a hot topic of discussion. On Tuesday, President Donald trump outlined a U.S. plan for further sanctions against China that include the removal of Hong Kong’s favorable trade status. China has, in turn, promised retaliation and could announce measures at any time now.

The strained relationship between the globe’s first and second-largest economies has been a major issue for global financial markets for some time. The ongoing spread of the Coronavirus and COVID-19 has put the nation’s differences in focus, as the U.S. has blamed China for the spread of the disease. COVID-19 also remains a very hot topic, as the number of infections is again on the rise. Several states, including Texas and Florida, recently made the difficult decision to once again close bars and restaurants. Some countries have also recently begun to reimplement lockdown protocols to try to contain the spread of the infection.

With the U.S. Presidential election quickly approaching, the fight to open or shutdown the economy could become an increasingly important topic. The Trump administration is currently pushing for schools to be open in the Fall, while some have suggested that many more closures are likely to be seen. The ongoing back and forth and unknowns surrounding the battle against the virus could keep investors flocking to the perceived safety of gold and could eventually weigh heavily on stocks and risk assets.

The markets seem to have picked up right where they left off at the end of last week. Last night saw U.S. stock index futures sharply lower, with the Dow dropping by some 700 points. Those declines did not stay, however, as investors saw opportunity throughout the trading session. Stocks are now sharply higher in afternoon trade.

The see-saw in equity markets has left the gold market with little to bank on one way or the other. The yellow metal is down over $5 per ounce in afternoon trade while maintaining prices well above the $1700 level. The theme for today appears to be investors worrying over a reduction in total consumer demand for precious metals due to lower economic output.

The notion that U.S. stock markets have come back too hard too fast is also putting a damper into the marketplace. Many people are likely wondering how the Nasdaq reached a new all-time high last week with swelling unemployment and a good portion of the economy still offline. Although stock markets do tend to look into the future, it is difficult to come up with a scenario in which fresh all-time highs for equities are justified.

The ongoing COVID-19 pandemic is also playing a role in markets and investor psychology. As the pandemic appears to be in the midst of a resurgence, some states are seeing a rise in new cases as the U.S. looks to get things reopened. Reported infections in the U.S. are now over two million, and a strong resurgence of the virus could potentially put the U.S. economy on hold for months or longer.

The economy has already seen significant damage from the virus and lockdown. The Federal Reserve recently gave a very somber outlook when it had its latest FOMC meeting on rates last week and investors are likely to pay close attention to Fed Chief Jerome Powell’s remarks this Tuesday and Wednesday on the economy during his two days of congressional testimony.

The days, weeks and months ahead could be vulnerable to heightened volatility across markets, especially if the amount of COVID-19 cases starts to rapidly expand further. The gold market could potentially benefit from the unknowns in the marketplace and could remain bought up on any significant dips.

Another bullish factor for the gold market may be recent weakness in the U.S. Dollar. The greenback is lower again today and could potentially see further selling as the U.S. Fed embarks on what could be an extended period of ultra-low rates combined with expansive QE measures. If the dollar’s sharp trend lower remains intact, it could fuel significant buying in gold and other hard assets that are denominated in dollars. Dollar weakness as well as fears of rampant inflation down the road could set the stage for a return by gold to previous all-time highs near $2000 per ounce or well beyond that level.