This week could be slower than last, as many investors avoid work, the markets and other responsibilities until the end of the holidays. The weaker dollar index likely played an important role in gold’s recent upside and could continue to do so.

 

The dollar weakness seen Monday was quite likely attributed to word that the U.S./China “phase 1” agreement would likely be signed sometime over the weekend. This initial agreement between the globe’s first and second-largest economies could potentially be a major step towards a viable, long-term commitment on trade. Few details have been released thus far, however, and it is unknown what concessions both sides will be making in order to make the deal work.

 

The idea of a U.S./Chinese deal being signed in the days ahead has reversed demand for risk-off assets, of which the dollar is part. If the U.S. and China appear to be seriously mending their trade relations, demand for dollars could see a significant decline as appetite for risk could rise. Although higher risk appetite could also weigh on gold, it could also ignite another reason for bullish investors to buy: Higher commodity demand from China and elsewhere could fuel a sharp rally in the yellow metal that could potentially see prices break out to the upside from recent highs. An upside breakout on the charts could, in turn, draw more buying interest into the market. A strong technical picture could take prices even higher in the process, possibly driving a rapid move towards previous all-time highs around $2000 per ounce.

 

Whatever the case may be, the gold market appears to have the pieces in place for a solid and sustainable run higher. What the primary catalyst may be, however, is still unknown. The bulls have maintained recent trade above the $1500 level and could look to take out previous highs in the $1550 region in the first sessions of the New Year.

 

In addition to ongoing U.S./China trade developments, the gold market has several other key issues that have the potential to drive the market sharply in both directions from recent levels. The ongoing Brexit saga could send waves through global financial markets, while another attack against Saudi oil could fuel a global crude scare and global recession. There is also the Trump impeachment to consider, although it appears to be quite unlikely that the U.S. Senate takes action against the President. Concerns over the next U.S. Presidential election could increase in the months ahead and could drive market volatility and selling in risk assets.

 

Whatever your outlook for the New Year may be, it is difficult to argue the notion that gold has several things working in its favor. If things calm down on the geopolitical scene and if stocks continue their run higher, there are still numerous, important reasons to buy and hold physical gold. As 2019 comes to an end and as the world gets ready to begin 2020, now is the time to keep your focus and approach on the long-term.

The gold market is off to a slow start this week as stocks and risk assets see a heavier bid as the new trading week gets going. Although the news and headlines may sound a bit rosier today, for the most part the news simply appears to be more of the same that has driven equity markets for several months now.

 

Over the weekend, China released a document that in part discussed the importance of intellectual property rights. The report also noted that those rights must be protected. Intellectual property rights have been a major sticking point in the ongoing U.S./Chinese trade negotiations for some time now, and an agreement could help pave the way for a phase 1 agreement being reached, possibly before the end of the year.

 

In addition to the Chinese document, Robert O’Brien, a U.S. national security advisor, said over the weekend that a phase 1 deal could potentially be reached before 2020. O’Brien did, however, also reiterate the notion that the U.S. would not be willing to turn a blind eye to other Chinese activities, including Hong Kong unrest and the South China Sea. His comments, combined with the Chinese paper, appear to be fueling appetite for risk as the new trading week gets under way. It is important to keep in mind, however, the fact that this is not the first, nor likely the last, time that positive commentary has driven market action. This has happened several times over the previous months, and each time the trade war has again weighed on stocks and overall investor sentiment. This time may prove to be no different.

 

As stocks rise today, the gold market is under moderate pressure. Spot prices are slightly lower in mid-morning trade, falling by some $2.30 per ounce to $1458.80. Price action is fairly slow thus far today, however, and the market may trade sideways the rest of the session barring any other new developments on trade. The bulls have thus far been able to hold the $1450 region, but another test of that area could be seen this week. A breakdown below $1450, on a closing basis, could spell trouble ahead for the yellow metal as more bears could look to get into the market on further weakness. Another successful defense of that area, on the other hand, could potentially assist the bulls in taking prices back towards the $1500 area.

 

The gold market has been in a downtrend on the daily chart for several weeks now, and any significant rallies could be sold into. The bulls need to take prices back above the psychologically key $1500 level in order to attract further buying interest. The bears will look for a close below $1450 and then the $1400 area to confirm further downside.

The current state of range bound price action in gold could take some time to work itself out. Although stocks have been moving further into fresh all-time high territory as appetite for risk has increased, there are still several, major issues that could keep gold on the offensive in the months and years ahead.

The gold market is moderately lower in early action Monday as stocks remain not far from record highs. Although a bullish outlook for stocks may keep any gains in metals limited, gold and silver are not likely to fall too far. Numerous issues could potentially keep the metals on the offensive, including ongoing U.S./China trade talks, the Trump Impeachment Inquiry and more.

 

Despite some additional downbeat data out of China over the weekend, stock investors appear optimistic in early trade today. Reports over the weekend have suggested that the U.S./China Phase 1 deal is nearly ready for signatures in what could be the biggest sign yet of a deal getting closer. Although a long-term agreement could take a few-if not several-more months to finalize, the Phase 1 portion would certainly be a step in the right direction. Any type of agreement made between the U.S. and China at this point could score some significant points, and stock markets could even embark on a fresh leg higher. President Trump on Monday has suggested that the ongoing trade talks are ahead of schedule and that part of the deal will be signed ahead of schedule. He did not, however, elaborate further on the potential timing of a deal. Trump has also suggested that he hopes to sign a deal with Chinese Leader Xi Jinping at a summit next month in Chile.

 

Although the ongoing trade talks remain an important focal point for investors, they are not the only one. Despite a deal being reached, or even the outline of a deal, stocks could potentially have a tough time moving higher following recent strength. Some markets have been moving up on the notion of easier monetary policies, and any letdowns in that arena could set the stage for a significant pullback in equity markets.

 

The U.S. Fed is set to meet again this week. It is widely expected that the central bank will cut rates again by another 25-basis points at the conclusion of its meeting on Wednesday.  Beyond that, however, is a far-more dangerous game and the Fed could even look to stay somewhat hawkish as other global central banks turn increasingly dovish. A hawkish Fed could set up a nice sell-off in stocks and risk assets while providing plenty of ammunition for higher alternative asset prices. Even if the central bank were to signal an end to its current easing this week, rates are still not likely to be going anywhere anytime soon. An extended period of ultra-low rates may keep stocks afloat for longer, but at the same time could also enrich gold and alternative asset classes. A rate cut this week has already been baked into the cake, but markets will likely be far-more concerned with the Fed’s commentary and any plans it may divulge going forward. Of course, the Fed and other central bank plans could also change rapidly as any new developments in the trade war are aired.

 

For the time being, gold looks to set to continue its sideways price action. Any significant dips in the market are likely to be bought aggressively as markets await further news on the trade war. Despite whatever the Fed does or does not do or even say this week, the outlook for easier monetary policies all over the globe is on the rise and could keep any dollar upside limited. This could, in turn, keep stocks on the offensive while also giving gold and other hard assets a boost. Such movements would not likely turn into a trend, however, as eventually stock investors will want more easing to keep equity markets moving higher. If, or perhaps better, when, the Fed has decided that enough is enough, stocks could potentially start to see increasingly bearish activity as the decade-long uptrend may have finally run its course.

There is less risk aversion in the marketplace as the new trading week gets started, and easing fears are weighing heavily on the gold market. In early action, the yellow metal is down at a seven-week low, trading into chart support around $1480 per-ounce.

 

The market is reacting to news that the Trump administration is not considering limiting U.S. investors’ activity in China or the de-listing of Chinese companies by U.S. stock exchanges. The initial reports of such possible actions late last week threw markets a curveball, but thus far there does not appear to be any substance behind the reports. Such a move would represent a significant escalation in the ongoing trade war and could potentially fuel a large degree of risk aversion and even panic.

 

The trade war remains a major focal point for investors, and there is some optimism as the next round of talks approaches. A Chinese delegation will be coming to the U.S. for high-level talks on October 10th and 11th, and at the very least markets are hoping for the initial groundwork for an agreement.

 

The Trump impeachment drama is also likely to garner attention. Although stocks initially sold off on the news and gold got a boost, equities have since bounced back. Thus far, it seems that the impeachment inquiry has been largely swept under the rug and it’s business as usual. That could potentially change, however, if the recent whistleblower complaint gains more traction.

 

Of note is recent dollar strength. Since the impeachment proceedings were announced, the dollar has been on the rise and is now sitting around a fresh 12-month high. Investors appear to have a preference for the greenback over gold at this point and should that trend continue it could potentially keep pressure on the metal.

 

A key line in the sand for gold may be the $1480-$1490 area. A solid close below this region could signal further downside and could cause more bulls to throw in the towel. Although such a move could send the market lower and negate the recent uptrend, a significant leg lower or bear market seems highly unlikely.

 

Against the current economic and geopolitical backdrop, the market may not fall too far. Numerous issues, including a failure of trade talks, a no-deal Brexit, an escalation of Iranian tensions and the Trump impeachment proceedings could all move markets quickly. Given the Fed’s data-dependent stance as well, key economic reports may also move markets as rate expectations change. This week, the latest ISM Manufacturing data as well as the September non-farm payrolls report could point to further economic weakness or a rebound. Any significant misses in the data could send gold back to $1500 in a hurry as markets become increasingly dovish. Significant strength in the data, however, could be a major negative for gold as it could keep the Fed from taking a more aggressive approach to further easing.

 

Ongoing weakness in China, the EU and elsewhere is likely to keep the central bank easing trend intact, and the ongoing era of cheap money should continue to be supportive for gold.