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The Week Ahead In Gold

February 4, 2019/in Commentary, Market Updates, Market Updates/by Border Gold Corp.

The last couple weeks have demonstrated just how quickly things can turn in modern financial markets. Without question, last week’s FOMC meeting will remain a primary market-driver and subject of debate in the months and years ahead.

Has the Fed Lost All Credibility?

This is the question that investors may now be asking. Last week’s Fed meeting took even the most-dovish expectations and turned them upside down. The Fed’s actions-or lack thereof-could set the stage for significant dollar declines and higher asset prices. Put another way, the central bank is not willing to pop a bubble of its own making.

Not long ago, the Fed seemed willing to take the heat that stemmed from criticism of its ongoing policy “normalization.” Just a few months back, Fed Chief Jerome Powell had suggested that rates had a way to go before entering neutral territory. That opinion changed soon thereafter, when Powell said that rates may be closer to neutral than previously thought. The Fed then went ahead with previous plans to hike the Fed Funds rate by another 25 basis points in December.

The markets did not take the rate hike lightly, and the month of December saw a significant rise in volatility as equity markets suffered steep declines. Although numerous issues such as the ongoing trade war with China and arguably overstretched valuations likely played a role in the stock market pullback, most analysts seem to agree that a hawkish Fed was the primary culprit behind the sell-off.

The last few months have seen a steady stream of Fed criticism, with everyone from Mad Money hostJim Cramer to President Trump voicing their displeasure with the Fed’s course of action. The Fed has tried to maintain its independence, however, and as recently as several weeks ago reiterated its plans for further hikes this year.

Those plans now seem to have been thrown right out the window. In an abrupt about-face, the Fed has not only reversed its position on further rate hikes but has also said it will halt its ongoing balance sheet reduction.

In effect, the Fed has announced that it will keep “priming the pump.” Whether this decision came about as a result of increasing political pressure or significant changes in the central bank’s outlook, the central bank’s reputation is likely to take a major hit.

For investors, however, this makes one key issue crystal clear: The markets simply cannot do without ongoing Fed stimulus.

Not only has the Fed now halted all of its quantitative tightening measures, it has suggested that it may need to start easing again. The problem is, with the current Fed Funds rate at 2.25%-2.50% and the central bank still holding nearly $4 trillion in securities on its balance sheet, the Fed will have little ammunition to fight the next recession.

The smart money seems to recognize this. Recent inflows and bullish price action in the gold market may suggest that many investors see the writing on the wall and are looking to position accordingly. Although stocks may get an initial bump from these developments, the bubble will burst at some point. When it does, look out below. If price action related to previous Fed balance sheet expansion and contraction are a good indication, stocks could eventually decline by 50% or more.

The Fed’s actions are likely to make the next recession longer and deeper than the previous. The central bank’s inability to continue tightening is also likely to cause significant dollar weakness in the process. Any way you slice it, the current environment is highly bullish for gold and recent gains in the yellow metal could simply be the tip of the iceberg.

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

December 27, 2018/0 Comments/in Market Updates, Market Updates/by Border Gold Corp.

Investors will be looking for some signs of stability the rest of the week as market declines and volatility have seen a sharp rise. The stock market had its worst Christmas Eve showing on record on Monday, with the Dow Jones Industrial Average dropping by almost 700 points. The declines put the benchmark S&P 500 within just a few points of bear market territory.

Monday’s sell-off came on the heels of what many consider to a bizarre and unexpected announcement by Treasury Secretary Steve Mnuchin. Mr. Mnuchin felt the need to reach out to the nation’s six largest banks while on vacation over the weekend and had conversations with each CEO regarding their respective bank’s capital position and liquidity.

The phone calls and subsequent announcement were done in an effort to calm the markets but clearly that plan backfired. The discussions of bank liquidity brought up concerns that were reminiscent of the 2008/2009 financial crisis, and investors are now wondering why Mnuchin felt the need to have these talks and why he felt he had to have them now.

Although markets have been under some significant pressure and volatility is clearly on the rise, there has not been any widespread concerns about liquidity or the health of the financial system in general. These actions over the weekend have raised some eyebrows, however, and investors are left wondering if there could be more negative news on the horizon.

The shakeup in the Trump administration has continued in recent weeks, with Secretary of Defense Jim Mattis and Chief of Staff John Kelly both deciding to exit the administration. These two men are considered to be a rational and calming influence in the administration and their absence is certain to raise some serious concerns about foreign policy and other issues.

The U.S. Government remains partially shutdown in the meantime as President Trump has stated that the shutdown will remain in effect until he gets the funds he has demanded to build a wall along the country’s border with Mexico. There have thus far not been any significant, tangible efforts to reopen the government and the current shutdown looks as if it will stretch into the New Year.

The bottom line is that there are numerous, serious issues at play that have the potential to fuel further risk aversion and massive declines in risk assets. The mix of geopolitical issues (both foreign and domestic), the trade war with China, a global economic slowdown and rising rates are all factoring into recent market behavior. The situation may get worse before it gets better, and the current asset rotation could continue in the weeks and months ahead.

The gold market is now trading at a 6-month high and appears poised for further upside. Although a pullback could be seen in the sessions ahead, such a pullback may be considered healthy after the market took out key resistance at the October highs around $1252. Stocks have gone from “buy the dips” to “sell the rips” while the gold market has now become a buyers’ market. This shift in market dynamics could keep a strong bid in the yellow metal and may very well lead to the next major cyclical bull market in gold as stocks enter what could be a deep and protracted bear market.

The Week Ahead In Gold

December 17, 2018/0 Comments/in Market Updates, Market Updates/by Border Gold Corp.

The gold market is moving slightly higher in early action on Monday to kick off what could be an extremely busy trading week. A heavy slate of economic data set for release, potential developments out of China and the Federal Reserve meeting set for Tuesday and Wednesday this week will likely dominate the headlines.

The Fed is holding its regularly scheduled meeting on rates this week and markets are expecting the central bank to hike rates by another 25 basis points. This rate hike has already been “baked into the cake” and markets will be far more interested in any clues the central bank may provide regarding its plans for monetary policy going forward. Just a few weeks ago, traders were pricing in another three rate hikes for 2019. Those expectations have been tempered lower, however, following some recent dovish commentary from Fed chief Jerome Powell. The notion of higher rates has given stock investors reason to sell and has been a major force behind recent market volatility.

The Chinese economy has also been a major source of concern for investors as recent economic data continues to point to a significant slowdown. China reportedly made a cash injection into its financial system today and additional economic initiatives could be announced by Chinese officials this week. As the world’s second largest economy, any measures taken to support the Chinese economy could potentially give both stocks and commodities a major boost.

A ton of U.S. economic data will be released this week including first estimates of Q3 GDP. The data did not get off on a strong foot today, however, as Empire State manufacturing data dipped to its lowest reading in 19 months. The gauge is the first of several regional Fed indexes that will be reported this week and further weakness in other areas could give the Fed further reason to pause. The central bank has already been under increasing pressure to halt its current path towards policy normalization and while a single rate hike for 2019 is still on the table, further domestic weakness could very well keep the Fed at bay for the year.

As the trading year winds down over the next two weeks, investors may begin to position their portfolios for the New Year. Significant asset rotation along with dwindling trading volumes can make for some volatile trade across asset classes in the sessions ahead. Global markets remain highly vulnerable to significant headline risk as well and any number of issues could potentially fuel a sharp rise in volatility.

The stock market has been unable to hold some significant rallies in recent weeks and has exhibited a technical breakdown. With deteriorating internals and arguably market fundamentals, stocks could continue to trend lower and forge deep into bear market territory. Further stock weakness could be a major catalyst for higher gold and these markets could show an increasingly negative correlation.

The gold market remains slightly below key resistance at the October highs around $1252. Thus far, buyers have stepped in to buy the dip and the market is likely to attempt a significant upside breakout in the sessions ahead.

The Week Ahead In Gold

December 10, 2018/0 Comments/in Market Updates, Market Updates/by Border Gold Corp.

The gold market is taking a bit of a breather in early action to start the new trading week. Prices did, however, reach a 5-month high in overnight action before pulling back. The market is attempting to break through key resistance at the October highs around $1252 and looks poised for further upside on a successful breach.

Safe-haven demand for gold has increased substantially in recent weeks, and given the current economic and geopolitical backdrop investors may continue to seek out alternative asset classes. Rising stock market volatility and further declines in risk assets could keep a very strong bid in the gold market, and an increasingly dovish Fed will also likely add fuel to the fire.

The ongoing war on trade with China remains a focal point of concern for investors. Although President Trump suggested after his meeting with Chinese President Xi Jinping that a deal may be close, skepticism has grown and the recent arrest of a Chinese executive by Canadian authorities and her possible extradition to the U.S. is not helping matters. China is growing increasingly angry, and the matter has the potential to put any talks on trade in serious jeopardy.

Recent developments in the ongoing investigation into possible Russian Collusion in the U.S. may also have investors on edge. New documents released last week seem to suggest that the special counsel is approaching a conclusion, and there is increasing talk of impeachment. With the democrats set to take control of the House in January, the investigations into this issue could potentially expand further and the Trump administration could have an increasingly difficult time implementing its agenda. Headline risk is significant and the potential for a major shakeup in Washington may also keep investor appetite for risk limited.

The ongoing Brexit saga is also weighing on sentiment as U.K. Prime Minister Theresa May recently cancelled the vote on her Brexit deal. Apparently, May felt that she would not be able to get the deal passed through the House of Commons at this time and the vote may be rescheduled for next week or even put off until early January. News of the delay sent the pound tumbling to 18-month lows. With major issues such as open borders and free trade arrangements hanging in the balance, any further breakdown in negotiations has the potential to send major waves through global financial markets.

In the meantime, growing concerns over a global economic slowdown will also weigh heavily on markets and risk appetite. Recent data out of China showed shrinking imports and exports, with exports rising by only 5.4% while consensus estimates were looking for a gain of 10%. To say that Chinese trade data is sluggish would be an understatement and the trend towards slower growth and demand could keep global markets on edge. Recent data may also suggest that the nation may take additional steps to try to halt the recent economic slide.

All of the issues outlined above could fuel significant risk aversion and even panic selling in global markets. As stocks continue to work their way lower, a protracted bear market may become increasingly likely. Further declines in risk assets will likely propel gold and other perceived safe-haven assets higher as a major asset rotation gains steam.

The Week Ahead In Gold

December 3, 2018/0 Comments/in Market Updates, Market Updates/by Border Gold Corp.

The markets are getting off to a rock-solid start on Monday as U.S./Chinese trade tensions ease. U.S. President Trump met with Chinese President Xi Jinping over the weekend as both leaders were in Argentina for the G20 meetings. The pair reportedly had a very productive conversation over trade and other issues, and agreed to hold off on additional tariffs set to be initiated on January 1st, 2019. Talks will continue in the meantime, and markets today appear confident that some type of deal will be hammered out before the New Year.

The effective cease-fire in the war on trade has sent stocks sharply higher in early action Monday with the Dow Jones Industrial Average up by nearly 400 points. Crude oil is also seeing some benefit, with prices higher by almost four percent. Gold is also sharply higher in early going, with spot prices higher by nearly $14 per-ounce.

The notion of a significant agreement being reached on trade comes on the heels of Federal Reserve commentary last week that many considered to be significantly more-dovish. Although the central bank will almost certainly hike rates again before the end of the year, the path forward for next year is undecided. The central bank had penciled in another three rate hikes for next year, although traders now appear to be pricing in only one more hike for 2019.

In addition to an increasingly dovish Fed, a trade agreement between the world’s two largest economies could also put pressure on the dollar. The greenback is slightly lower in early going today, and further progress on trade could erode some of the currency’s safe-haven appeal. A weaker dollar may simply reinforce surging demand for commodities and dollar-denominated assets and could set the stage for a significant rally across several asset classes. A stronger dollar has likely been a major factor in gold’s lack of upside this past year, and a major reversal could potentially ignite a powerful rally in gold that could signal the beginning of the next cyclical bull market.

Although stocks may now see a near-term boost, the longer-term outlook remains unclear. Numerous bullish factors have now come into play in recent days that could propel equities higher into next year. Some big tests may lie ahead for the stock market, as the bears may look to sell heavily into any significant rallies.

The gold market, on the other hand, appears poised for further upside as it gets ready to challenge near-term resistance in the $1245 area. The market may benefit from a weaker dollar if a trade deal is reached and the Fed slows its tightening. The market also stands to benefit from rising commodity and raw material demand. In addition, the geopolitical climate may also see some significant changes next year that could heighten gold’s appeal as the democrats take control of the House. This could lead to serious government-gridlock and may make it difficult, if not impossible, for President Trump to continue to implement his agenda. The threat of further investigations into the administration may also keep investors on their toes.

The next several weeks going into the end of the year could provide some significant clues about changing market dynamics and what investors will be focused on as the New Year gets underway.

The Week Ahead In Gold

November 26, 2018/0 Comments/in Market Updates, Market Updates/by Border Gold Corp.

The gold market ended last week on a bit of a weak note, as prices slumped by $5.60 per ounce in light holiday trade. As investors return to the financial markets this week, however, volumes could see an uptick as end-of-year positioning gets underway.

The next several weeks could see a significant increase in market volatility. The benchmark stock indexes have already shown an inability to hold a strong rally, and the CBOE’s VIX index recently staged an upside breakout on the daily charts. Unfortunately for stock investors, the markets could have a long way to fall before finding a long-term bottom.

One of the key drivers of recent market volatility has been the notion of rising rates. The Fed has already lifted its key interest rate twice this year and has one more hike ready to go next month. The Fed has also maintained its plans for another three rate hikes next year, although those plans are now facing some very serious scrutiny.

Although the central bank will almost certainly follow through with another hike at its next meeting, expectations now seem to be that the Fed will take a step back at that point and reassess its plans for next year. The central bank has faced a chorus of negativity surrounding its path towards policy normalization, and it seems more and more market participants from President Donald Trump to Mad Money host Jim Cramer are chiming in and voicing their opinions against further tightening from the Fed.

This criticism puts the Fed in an interesting spot. The central bank has gone out of its way in recent months to demonstrate its independence as it has asserted that further rate hikes are data-driven and remain appropriate. Recent stock market selling, however, might suggest that the Fed is moving too far too fast. Serious questions have been raised as to whether the economy can handle higher rates, and corporate valuations may need to see a much larger re-pricing given a higher cost of capital.

In other words, if the Fed does not back off on raising rates, recent declines in equities may be just the beginning of a much larger move lower.

Regardless of what the Fed does or does not do, the gold market seems to be in a position to benefit. Higher rates could send stock investors fleeing and could fuel significant risk aversion. This, in turn, could force a major asset rotation in which significant capital could find its way into gold and other perceived safe-haven asset classes.

If the Fed elects to hold off, or even decides to cut rates again, it could possibly buoy stocks but at the same time could fuel a major reversal in the dollar. The stronger dollar has been a major hurdle to higher gold this past year, and with that barrier removed the yellow metal could potentially see a swift and significant upside breakout. Resistance in the $1245 area remains the next upside target for the bulls.

The Week Ahead In Gold

November 19, 2018/0 Comments/in Market Updates, Market Updates/by Border Gold Corp.

The gold market is trading slightly lower to kick off the new trading week as investors digest recent gains. Price action could potentially be fairly quiet early this week, as investors gear up for the Thanksgiving Holiday on Thursday. Markets will be closing early on Wednesday, and Friday will likely see many investors out and thus very low trading volumes.

The market has thus far remained bullish, and a key test of the psychologically important $1200 level recently would seemingly suggest that buyers are willing to step in on any dips at this point. This is especially important given the fact that the dollar is not far from recent 1.5 year highs. Numerous factors appear to be keeping any downside in gold limited, including accelerating inflation, stock volatility and geopolitics.

A major area of focus in the weeks and months ahead will likely be the Federal Reserve and its plans going forward. The Fed has stuck to its guns so far, gradually hiking rates as it looks to normalize monetary policy. The central bank has, however, come under increasing scrutiny from some market-watchers and even President Trump has made his opinions on the Fed’s plans very clear. It has been suggested that the Fed is acting too aggressively with its rate hikes, and some have argued that the central bank could very well push the economy into recession.

Bridgewater Associates founder Ray Dalio last week suggested that the Fed has already raised rates to the point of hurting asset prices, and that the central bank should focus on asset prices before economic activity when making further decisions. It is a challenging spot for the central bank to be sure, and it comes at a time when the Fed is clearly trying to maintain and demonstrate its independence.

Although all of the recent discussions about the Fed will likely not stop it from hiking rates once more next month, further stock market turmoil or geopolitical issues could potentially give the central bank reason to rethink its strategy for next year. The Fed currently has another three rate hikes penciled in for 2019, but a slowing global economy and other factors could keep a further rise in rates limited. Lower copper prices, tumbling crude oil, weaker housing data and increasing inflation could all point to a significant global slowdown that could drastically change current market dynamics.

If the Fed does in fact take a more dovish approach, the dollar could come under pressure and dollar-denominated assets could stand to benefit. The dollar may also begin to see fading upside as the effects of tax cuts and government spending begin to fizzle. A reversal in the currency could set the stage for a significant rally in gold. The yellow metal is already enjoying an improving technical posture and may be in a consolidation process before making a significant move. Given the current economic and geopolitical backdrop, such a move would likely take place to the upside. A significant upside breakout could potentially prove to be just the beginning of a protracted bull market that could coincide with stocks entering the next bear market.

The Week Ahead In Gold

November 12, 2018/0 Comments/in Market Updates, Market Updates/by Border Gold Corp.

The gold market is kicking off the new trading week on slightly weaker footing. The Veteran’s Day Holiday may keep many participants out of the markets on Monday, and price action may be dull.

This week, investors will once again have their hands full as they watch for any fresh economic or geopolitical developments. There are two themes in particular which may garner considerable attention: Rising inflation and falling crude oil prices.

According to an article from marketwatch.com, producer prices rose by .6% on higher gasoline and industrial supplies. This figure represents the largest increase in six years. The hotter than expected inflation data will likely force the Fed to continue on its current path of interets rate hikes. The central bank is widely expected to hike rates once more before the end of the year, and has penciled in another three rate hikes for next year.

The path of rate hikes had come under increasing scrutiny in recent months, as some key data pieces fell short of expectations and as the housing market continues to show some weakness. Even President Trump has gotten involved, making his opinion of further rate hikes very clear. The independent central bank does not appear likely to veer off its current course, however, and the PPI data is just one more reason that further tightening may be warranted.

The crude oil market is also another factor that could potentially shake things up. Oil officially entered bear market territory last week after dropping 10 days in a row. Such a straight decline had not been seen in the oil market since 1984.

Like copper, the crude oil market is often viewed as an overall barometer of economic activity. Recent price action would then seem to suggest that the global economy is not as strong as many investors think. In fact, the declines in oil could potentially be one of the effects of the ongoing U.S./China trade war. Copper has already seen major declines in recent months and appears poised for even more selling. In the current environment of rising rates and trade disputes, the combination of lower copper and lower oil could point to tougher economic times ahead.

China is one of the world’s largest consumers of raw goods and commodities, and the recent slowdown in the Chinese economy is certainly playing a major role in lower commodity prices. Chinese officials have already suggested various forms of action to prop up the world’s second largest economy. The question is will it be too little too late.

The dollar has benefited from the rising inflation data and the notion of further rate hikes. The greenback is trading at a 16-month high on Monday, and could see further gains as the week progresses. With recession and geopolitical risks on the rise, the stronger dollar appears to be the biggest hurdle to higher gold prices.

Gold is currently trading around a four week low, and could face a significant test in the sessions ahead. Following recent upside and a period of price consolidation, it is imperative for the bulls that the current dip is bought. The $1200 level could potentially find some buyers, and below that the previous swing lows around $1181-$1183 will need to hold. A break below those levels could potentially set the stage for a significant leg lower in the weeks ahead.