The gold market has been trending lower over the last few weeks as numerous issues stand in the way of higher prices. The market appears to be lacking any fresh, bullish catalyst currently, and the increasingly hawkish tone coming from central banks is not helping either.

The U.S. Federal reserve recently raised interest rates again, and has thus far stuck with its forecast for another rate hike before the end of the year. Other central banks have also begun talking about normalizing monetary policy, with even the ECB sounding more hawkish than any time in recent memory.

Although hawkish rhetoric has, and may continue to weigh on gold prices, you have to wonder if perhaps policy makers may be getting a bit ahead of themselves. After all, 2016 was supposed to see four rate hikes from the U.S. Fed but only saw one. Could such a scenario be seen again?

Yes- economic growth has been on the rise. Yes-stocks are near all-time highs and could keep moving higher. Yes- risk appetite seems to be quite robust.

But…

The economy remains on some less than solid ground. Some key measures have shown strong improvement while others have simply shown little to no real improvement. Perhaps most important; inflation remains to be seen.

The lack of inflation could potentially allow the Fed and other central banks to keep their feet on the gas pedal longer than currently anticipated. You could also make the argument that these banks are raising rates only to have the flexibility to lower them again later.

Fed Chairwoman Janet Yellen will be giving her semiannual testimony before the House Financial Services Committee this week. Although the subject of inflation may be addressed, investors will likely be focused on the Fed’s concerns over rising asset prices and stubbornly low treasury yields. The question may be whether or not the central bank is ready to take action to prevent any further overheating. Given the market’s upward trajectory, however, it may take some very harsh rhetoric from the central bank to derail the equities rally at this point.

The current geopolitical landscape, while quiet right now, has the potential to have a significant impact on global markets. North Korea, in particular, is a problem that is not going to simply go away. Any further escalation in tensions could fuel a stock market sell-off and broad flight to safety. Ongoing domestic issues in the U.S. could also drive risk aversion, as investors may begin to lose patience regarding new legislation for health care, tax reform and fiscal spending.

The bottom line is that the current state of quiet is not likely to continue indefinitely. Volatility may begin to rise, and as it does it may fuel capital outflows in risk assets while stoking inflows into perceived safe haven assets like gold.

Any dips in gold from current levels may potentially be viewed as a buying opportunity, and the market could possibly be setting up for a major rally once the aging bull market in stocks has run its course.

Ms. Yellen’s testimony this week will likely be the main driver for price action in the gold market, and could potentially cause a major shift in investor sentiment. 

The gold market is on its heels to begin the new trading week, with appetite for risk taking a bite out of the yellow metal’s appeal. Gold is once again finding itself on the defensive following another failed probe higher, and for now it appears that perhaps the market is quite comfortable in its recent trading range.

Weaker crude oil prices, higher stocks and a slight rebound in the dollar index are all likely weighing on gold currently, and the prospect of additional rate hikes from the Fed is not doing the market any favors either.

That being said, however, the Fed may take a more cautious tone in the coming weeks and months, and if no major legislation is passed in the U.S. regarding tax cuts and infrastructure spending investors may become considerably more anxious.

Although the Fed recently stuck with its plans of another rate hike this year, some recent weakness in key pieces of economic data and falling oil prices could give the central bank reason for pause.

The oil market has been a major story in recent headlines, as prices have slid to their lowest levels of the year in the low $40s per barrel. Crude oil is often considered a barometer of overall economic activity, and the energy sector-with its large market cap-has a tendency to lead the market whether the direction is up or down.

Lower oil prices may weigh heavily on energy shares and could potentially be a catalyst for a long-overdue market correction. Falling crude prices are also another primary example of the lack of inflationary pressures currently being seen. This represents yet another conundrum for the Fed, as inflation remains stubbornly below the central bank’s 2% target.

For the time being, investors will likely take a wait-and-see approach to the markets, and the path of least resistance in stocks still remains higher. Many analysts, however, are sounding alarm bells about current stock valuations, and the equities market could be getting closer to a major reversal.

The gold market may simply bide its time until a fresh catalyst for higher prices presents itself. The U.S. could see the next economic recession take hold in the coming quarters, and numerous geopolitical issues could also potentially fuel a risk-off mentality.

Stock investors have been relatively patient thus far, but will likely want to see some key pieces of legislation passed by the Trump administration in order for the bull market to continue.

If, or when, the stock market begins to show significant signs of weakness, gold could potentially see significant inflows that could fuel an upside breakout and send prices sharply higher from current levels. The Fed could find itself in a precarious position if stocks begin to falter, and the path of rate hikes could potentially be slowed even further-or even cease altogether.

In fact, you could certainly make the argument that the Fed may simply be raising rates in order to have the ability to lower them again if or when necessary. The notion of an ongoing period of lower rates may keep a floor under gold prices, and gold could see significant upside if the Fed is forced to change its current trajectory regarding monetary policy.

The gold market is getting off to a sluggish start to begin the new trading week. A lack of any fresh, bullish inputs is likely weighing on the yellow metal while also giving some investors reason to book profits.

Although investors will continue to monitor numerous geopolitical issues including the recent U.K. elections and North Korean saber rattling, they will also have plenty of economic data to chew on this week. In fact, U.S. markets will see the latest releases of several key pieces of economic data including PPI, Retail Sales, Empire State Manufacturing, Weekly Jobless Claims and more.

The biggest potential market mover for the week will almost certainly be Wednesday’s FOMC meeting conclusion. It is widely expected that the Federal Reserve will hike interest rates by another 25 basis points-although some analysts have suggested that a surprise could potentially be in store.

The question is whether or not the central bank could decide to delay further tightening until their next meeting. Some recent weakness in key economic data points, along with some signs of cracking in technology stocks could possibly give central bankers something to think about before pulling the trigger on another rate hike.

For the most part, the central bank has stuck to its guns regarding its plans for normalizing monetary policy. There are numerous issues, however, that could force the Fed into rethinking its plans going forward.

Gold has been seeing some steady buying once again in recent action, as geopolitical jitters fuel some flight to safety buying. The market has, however, failed to move above the $1300 level once again-at least for now-and may need to see some upside follow through to attract more fresh buying interest.

The stock market could potentially hold the key to higher gold in the near-term. Recent weakness in the tech sector could potentially be indicative of market exhaustion, and numerous analysts continue to suggest that valuations are at unsustainable levels.

A significant breakdown in stocks could prove to be the catalyst for a major upside breakout in gold and other perceived safe haven assets. Such a breakdown could be driven by several key factors including valuations, geopolitical fears and a perceived lack of progress on the fiscal stimulus front.

The dollar index will also likely be a major factor in the near-term, as the greenback has been trending lower for some time now and has yet to show any significant signs of bottoming out.

The weighted year-end average call for the 10 year treasury yield has also declined again, now standing at a yield of 2.7%. This estimate represents a decline of about 20 basis points from just two months ago, and seems to indicate investors believe that following a hike this week the Fed will then sit on its hands until December.

Numerous political distractions are likely a major factor in lower inflation expectations, and such distractions are likely to be unresolved for some time.

Lower yields, a more dovish Fed and the potential for a stock market reversal may all fuel further upside in gold in the coming weeks and months. 

The gold market is getting off to a slow start to begin this holiday-shortened trading week. Despite numerous potentially bullish developments in recent days, gold investors appear willing to book some profits at current levels after prices hit a one month high in recent action.

The upcoming mid-June Fed meeting is likely the main catalyst for any selling in the yellow metal at this point, as investors brace for another rate hike from the central bank. This week will be particularly important from an economic data standpoint, and there will also be numerous Fed officials speaking at various engagements throughout the week.

Although the “Fed-speak” this week could potentially provide further clues about the timing of the next hike and additional hikes to come, the employment data this week will also be very carefully scrutinized.

Friday’s Employment Situation report is projected to show an increase of 185,000 jobs in May, with the unemployment rate steady at 4.4%. If this figure comes out in-line with consensus estimates, it would mark the second straight month of solid gains following April’s 211,000 rise. A 185k number or better will almost certainly seal the deal for a June rate hike, and it would likely take a very significant miss at this point for the Fed to decide to delay.

The dollar index could also play a major role in gold’s fortunes this week as the greenback attempts to stem the recent bleeding. The dollar is in a three month downtrend at this point, and has given back all of the gains seen since the Trump Presidential election victory. Further weakness in the currency could potentially pave the way for higher gold and commodity prices. A more hawkish-sounding Fed, however, could give the dollar a boost and fuel some selling pressure in the metals.

Of course there is also the geopolitical landscape that investors need to pay attention to. President Trump recently completed his first overseas trip as President, and it certainly appears that he is more than willing to shake things up. U.S. relations with key allies may be headed for significant changes, and the future of NATO even seems uncertain.

Potentially significant changes on the world stage are coming at a time when tensions over North Korea and its nuclear program appear to be headed even higher. In another defiant act, North Korea recently tested another missile. Each and every test brings the nation one step closer to gaining the ability to launch a strike on the U.S. mainland or other key regions.

How this situation will play out remains unclear, but thus far the diplomatic route appears to be failing. It seems that the likelihood of some type of military intervention is rising, and the potential for armed conflict could underpin gold prices and other perceived safe havens.

The gold market may seem some selling in the near-term, but buyers may once again emerge following a hike from the Fed. The path of least resistance appears to be higher, and a breach of the recent trading range could potentially set up a significant leg higher in the coming months.

It was seemingly only a matter of time before North Korea tested another missile, and over the weekend the nation did just that. North Korea reportedly launched a Hwasong-12 missile on Sunday that reached an altitude of 2111.5 kilometers and covered a distance of 787 kilometers.

This latest provocation by North Korea is likely to keep markets a bit on edge, and may revive the flight to safety bid in metals and other hard assets.

The rhetoric has heated up considerably from both the U.S. and North Korea since Donald Trump took office in January, and it appears that the two nations could unfortunately be headed for a military conflict. Although many do not believe that North Korea has the capability-at least not yet-to strike the U.S. mainland, the nation could target Guam or other U.S. interests in the region.

Prior to the weekend missile launch, investors had been focused on the recent firing of U.S. FBI Director James Comey. The firing of Director Comey by the Trump administration appears to have raised numerous red flags, and some believe that Comey’s dismissal was essentially in retaliation for the ongoing investigation into potential ties between Trump’s campaign and Russia.

There is sure to be more headlines regarding this situation, and it is an issue that could potentially have far-reaching consequences. Some believe that Trump has abused his power, and talk of a “constitutional crises” is on the rise.

The ongoing conflict surrounding the administration could make it very difficult, if not impossible, for the President to get key legislation passed. In fact, the issue is just another of several that are acting as a significant distraction from the work at hand.

Recent discussions of an angry and frustrated Donald Trump possibly looking to shake up his staff may only add to the confusion and worry that seems to be hanging over the White House currently.

Although the stock market looks set to open the new trading week in the green, you have to wonder how much longer stocks can keep marching higher given the amount of geopolitical issues currently being faced. In fact, any one of a number of issues right now has the potential to fuel a significant sell-off in stocks and a massive spike in volatility. Such a scenario could potentially be extremely bullish for gold, and the yellow metal could see significant inflows of investment capital.

Not to beat a dead horse, but it is important to keep in mind that the rally in stocks over the last several months has been largely-if not entirely-based on the notion of tax reform and fiscal spending. At this point, it looks like any tax reforms are off the table for this year, and investors are still awaiting fiscal spending plans.

The more conflict that is seen around the Trump administration, the more difficult it may become to implement these key policies. If progress is not being seen, and if investors begin to get more anxious, the Fed could even elect to hold off on another rate hike in June. Although this may appear unlikely at this point, things can change in a hurry and a sizable sell-off in stocks could make the central bank think twice before taking action again.