As far as the gold market goes, the week ahead could be a busy one. The trading week will be packed with key economic data, the May FOMC meeting announcement, speaking engagements with various Fed officials and more.

 

This week could potentially turn the recent tide of weakness in gold, or it could put considerably more pressure on the yellow metal.

 

On Friday, markets got the latest reading on first quarter GDP which was well below consensus estimates of 1.1% with a reading of just .7%. Consumer spending was a significant drag, as it rose at a rate of just .3%, the worst reading since the fourth quarter of 2009. While the overall report could be considered mixed, the lack of growth in consumer spending could potentially be indicative of recession.

 

This weaker than expected GDP figure could make this week’s FOMC meeting a bit more interesting. Although markets are pricing in only a very small chance of a rate hike from the central bank this week, the Fed may offer some significant clues about its plans going forward and its overall assessment of economic activity.

 

Fed Funds futures contracts are still pointing to a very strong likelihood of a June rate hike from the central bank, although numerous issues could potentially put the Fed in a difficult position.

 

Friday’s poor GDP data may give the central bank a reason for pause, and could increase any concerns the Fed may have about extinguishing growth by being overly aggressive in its efforts to normalize monetary policy.

 

Not only does the Fed have to contend with the GDP figures and some other areas of economic weakness, but it may also weigh the current geopolitical landscape as well. In addition, if the Trump administration does not make more concrete progress on some of its key policy initiatives, investors may become nervous and the stock market could potentially begin to slide-a development that the central bank could also consider.

 

All in all, the Fed could very well find itself between a rock and a hard place as it considers rising price pressures with the possibility of slowing economic activity. Ongoing tensions with North Korea and Russia may only complicate matters further, and markets could be vulnerable to increasing volatility in the coming weeks and months.

 

What all of this could mean for gold remains to be determined. The yellow metal has been pulling back in recent trade, although its uptrend remains intact.

 

A more dovish tone from the Fed this week could send gold back to its recent highs or beyond, while a more hawkish tone could potentially fuel further downside pressure. The market may not fall far, however, given the current state of geopolitics and what appears to be increasing chances of military action against North Korea.

 

Investors and the gold market will also continue to pay attention to the French elections, with the next round of elections to take place on May 7th. This election, and other upcoming European elections have the potential to make or break the European Union as it exists today and could have far-reaching effects on global financial markets. 

The geopolitical world has certainly seen some changes since Donald Trump took office in January. Although the vast majority of discussions have been centered on Russia and China, recent headlines would seem to suggest that North Korea currently poses the biggest threat to U.S. national security.

 

The last several weeks have seen the U.S. launch a military strike against a Syrian airfield in retaliation for a chemical weapons attack that killed numerous innocent civilians. Although there has been some debate about the tomahawk missile strikes ordered by President Trump last week, many have also applauded the fact that action was taken.

 

The strike against Syria has fueled tension between the U.S. and Russia.

 

North Korea has seemingly continued in its pursuit of a nuclear weapon, and recent actions appear have been in direct defiance of the U.S. and its allies.

 

The parade in North Korea this past week was called a celebration, but also seemed to be an excuse for the country to showcase some of its arsenal. Unfortunately for the U.S., the North Korean arsenal that was on display appeared to be far more advanced than military and intelligence officials previously thought, adding to rising concerns over the nation’s capabilities.

 

On Sunday, the country attempted another missile test that failed according to U.S. and South Korean defense officials. Recent reports said the type of missile that was being tested has not yet been determined.

 

This failed test is being seen as another provocation in a series that could eventually lead to military action.

 

There are discussions already being had about a U.S. offensive to take out North Korea’s nuclear program, and unfortunately such a scenario could be getting closer than many of the public assume.

 

For right now, the U.S. is hoping that China will assist by exerting its influence. What steps China may be willing to take, however, remains unclear.

 

This issue is just one of several that could keep the gold market well-supported in the near term.

 

Also bullish for gold is the notion that the Federal Reserve may have to keep further rate hikes on hold. Recent jobs data was disappointing, and other economic indicators are also showing some signs of lackluster activity.

 

The bigger story could potentially be concerns over the Trump administration’s ability to pass its highly-touted tax reform and fiscal spending plans. The recent failure to repeal the Affordable Care Act has likely fanned those fears further, and if the administration is unable to move forward on these key issues markets could be setting up for a major downside reversal.

 

Such a scenario could also fuel selling in the dollar index, which would likely add to the yellow metal’s allure.

 

The gold market appears poised for further gains as its technical posture has improved significantly and as the geopolitical situation has become much more serious. Geopolitics will likely be the main driver of gold prices in the near-term, however, any data disappointments or dovish rhetoric from the Fed could also be supportive for the yellow metal. 

Both the stock market and the gold market had a strong first quarter to begin the New Year. As we get deeper and deeper into the Trump Presidency, however, things may not look quite as rosy as they did a few short weeks ago.

 

It’s no secret that the rally in equities and risk assets over the last several months has been built on the notion of major tax reforms and massive fiscal spending. The promise of returning manufacturing jobs to the U.S. and looking to improve trade deficits has also been a factor in the stock market’s ascent.

 

That ascent in equities has potentially run its course, however. There are numerous economic and geopolitical issues on the horizon that could potentially lead to a significant shift in investor sentiment and a corresponding spike in market volatility.

 

Although there are numerous things that have the potential to fuel volatility and make investors anxious, here are a few of the major ones that could potentially shake global financial markets and fuel demand for safe haven assets such as gold and other metals:

 

Trump’s tax reforms may not see the light of day: The Trump administration’s tax cuts are already running into a wall of resistance. Massive tax cuts combined with a significant boost in defense and fiscal spending leads to higher deficits. After the Trump administration was not able to put together a vote to repeal the Affordable care Act, investors may begin to doubt its ability to pass other key pieces of legislation. Markets have moved sharply higher on the idea of tax cuts and more spending, and if this does not come to fruition they will have to adjust which could lead to volatility and sharply lower stock prices.

 

Here comes the debt ceiling again: The continuing resolution that prevented a government shutdown is set to expire at the end of April. The debt ceiling could potentially become a major source of partisan bickering. The idea of an agreement not being reached and the first ever U.S. default could potentially send shockwaves through global financial markets. If the debt ceiling is raised, the nation is still adding to its already enormous debt load. Either way, the ceiling could fuel significant demand for gold and other perceived safe haven assets.

 

North Korean saber rattling: It is certainly no secret that tensions between the U.S. and North Korea have been on the rise. Ongoing provocations by the North Korean Government have not gone unnoticed, and the U.S. has said that it is willing to take unilateral action against the nation if necessary. As the country becomes more advanced in its nuclear capabilities, the issue becomes more and more urgent. The U.S. would undoubtedly prefer to have China’s support in any efforts against North Korea, and this week’s meeting between President Trump and Chinese leader Xi Jinping may be very significant.

 

All of these issues have the potential to be a major catalyst for market volatility and lower stock prices. They also have the potential to fuel what could be a major rally higher in gold and other perceived safe haven asset classes. The next few weeks could become very interesting, and could see a dramatic shift in investor sentiment.

The gold market has seen a nice bounce in recent action, recovering much of the losses seen in recent weeks. The gold market tested the $1200 per ounce level, and found willing buyers. Now around the $1230 level, the gold market is about $35 per ounce from its recent highs.

 

Perhaps the gold bulls should be thanking the Fed. After a significant amount of more hawkish rhetoric from the Fed, the central bank this past week struck a different tone. The central bank did raise the Fed Funds rate by a quarter point in a move that was totally expected. What may have caught some investors off-guard, however, was the dovish tone surrounding the announcement on monetary policy.

 

After data showing rising inflationary pressures and a strong labor market, Fed officials began talking up rate hikes, essentially letting markets know that a March hike was coming. Numerous central bank officials have commented in recent weeks on the outlook for rates and the economy, and it left the impression that there was a good possibility that the central bank could become more aggressive with rates as it looks to normalize monetary policy.

 

Last week, however, the Fed stuck to its previous forecast of three rate hikes in 2017 and three in 2018. Although the Fed has said that the Trump administration’s plans do not factor into its decision (at least not directly), it does seem as if the central bank is interested in seeing what effect any potential tax reforms and fiscal spending may have on the economy.

 

The slow and steady approach towards tightening reiterated by the Fed seemed to be music to the ears of the gold bulls.

 

Lacking any fresh bullish catalyst, it remains unclear how high gold may go from current levels. Gold may see ongoing interest if inflationary pressures continue to gather steam. As long as equities continue higher, however, the gold market may see only limited upside.

 

Stocks have moved higher on the notion of significant tax cuts and fiscal spending, although neither of these policies has been implemented yet.  Investors have been patient thus far, but it remains to be seen just how far that patience will go.

 

Some might argue that the bull market in stocks is getting very long in the tooth, and that the chances of a recession are increasing. If the stock market begins to falter, it could potentially keep the Fed less motivated to hike rates while also fueling capital flows into alternative asset classes.

 

A major stock market breakdown could potentially be like throwing gasoline on a smoldering campfire, and could see the price of gold move significantly higher from current levels.

 

Gold may also see support from ongoing geopolitical risks. The Trump administration has had its share of controversy already, and it seems that the administration is always one misstep away from a major international incident.

 

The administration could make or break the markets in the coming months. A massive fiscal spending package may fuel growth and inflation and send stocks even higher. If the administration is not able to deliver, however, markets could head sharply south in a hurry.

 

Gold may potentially find itself in a position to benefit either way. 

Although gold has backed off from its recent highs, the uptrend seen in the yellow metal since the first of the year remains intact. Although the gold market has likely seen some benefit from uncertainty surrounding the Trump administration and implementation of its policies, the yellow metal may face some significant headwinds in the coming weeks.

 

Gold investors may have a hard pill to swallow when it comes to the Fed and interest rates. Just days ago, it was thought that the central bank would almost certainly hold off on any further rate hikes until June. That would give the Fed the chance to see what policies the new administration may be able to put into action, and also how they might affect the broader economy.

 

Recent commentary from Fed Chairwoman Janet Yellen and numerous other Fed officials, however, points to a central bank that is ready to act now.

 

The Fed Chief left little doubt on Friday that the central bank was ready to act this month and lift the benchmark Fed funds rate again. Ms. Yellen said on Friday that if the economy stays on its current rack, a rate increase “would likely be appropriate.”

 

What perhaps caught some investors off-guard was other comments that may be indicative of the central bank being even more aggressive with rates this year than previously thought.

 

The Fed has penciled in three rate hikes for 2017, but given recent economic and inflation data, four would not be a stretch by any means.

 

How this may affect the gold market remains unclear. The next few weeks, however, may be very telling.

 

The notion of rates rising faster than expected may also boost the dollar, which could potentially challenge its post-election highs. A higher greenback could also potentially weigh on the yellow metal in the coming weeks.

 

Looking at the bigger picture, even with multiple rate hikes this year, rates remain historically low. Gold investors may not become too distressed about a Fed funds rate of one or two percent.

 

Although some might argue that Fed tightening is bearish for gold, further rate hikes also have the potential to benefit gold.

 

The stock market has been climbing and climbing and then has climbed some more. Some might argue that stocks are artificially elevated due to ultra-low interest rate policies and QE. It is also important to keep in mind that stocks have been rising for several years now. A recession could also potentially be in the cards in the coming months.

 

If equities finally begin to show signs of cracking, gold could potentially see additional capital inflows. A more aggressive Fed could potentially fuel selling in stocks.

 

The gold market may see some further selling, but prices may not fall too far. There remains a degree of risk aversion in the marketplace that won’t seem to go away. The Trump administration continues to deal with an image problem, and there are still calls for an investigation into possible ties to Russia.

 

These issues are not likely to be swept under the rug, and could potentially fuel ongoing buying in gold with or without further rate hikes from the Fed.

 

In the meantime, a March rate hike from the Fed may provide a decent test of the gold bulls’ resolve. The absence of any significant selling could potentially be construed as an underlying sign of market strength.