The Week Ahead In Gold

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The gold market could potentially see some additional selling this week as higher stocks and rising rates point to an improvement in overall risk appetite. Some profit taking and back and fill trade is to be expected in gold at this point following recent upside, and may simply prove to be a short-term detour before another leg higher.

 

Although the June 23rd Brexit referendum has been the focal point of markets for several weeks, that historic vote has begun to take a back seat to other issues. On Friday, the nation of Turkey experienced an attempted coup that dominated news headlines over the weekend.

 

The coup was a failure, and President Recep Tayyip Erdogan appears to be in full control of the country. Unfortunately, this type of uprising often does not work out well, and it will be some time before the nation feels secure again. In the meantime, there have been talks of bringing the death penalty back and thousands have been arrested.

 

While the issues seen in Turkey over the last couple days have not had a major impact on global markets, it does go to show just how fragile peace and geopolitics can be.

 

In other news, the world is still reeling from last week’s terrorist attack in Nice, France in which 84 people lost their lives and hundreds were injured. This terrorist attack did not have a large impact on global markets, and unfortunately, it seems that the world has grown accustomed to such attacks. The threat of terrorism is something that may have to be dealt with for a long time, and the possibility of increasing risk aversion in global markets always exists.

 

Markets will likely turn their attention this week to the Republican National Convention being held in Ohio this week. With the top candidates having major differences on so many key issues, investors will likely pay more attention to the Presidential race as it approaches the finish line. A close race has the potential to impact markets and drive risk aversion as the uncertainty over the direction of the country going forward could compel investors to dump risk assets in favor of perceived safe havens.

 

This week will be on the lighter side from a data perspective, and trading volumes could begin to dry up as investors take vacations and get away from markets for a bit. That being said, investors will get the latest readings on some key pieces of housing data, as well as Weekly Jobless Claims, PMI Manufacturing data and Leading Indicators.

 

The ongoing debate over the pace and timing of any further rate hikes by the Fed will likely continue, but for now it appears that the dovish camp may have the edge. The reality is that even with another hike, or even two or three, interest rates will likely remain low for some time to come as ongoing concerns over China, Brexit and other issues keep the Fed from being too aggressive.

 

While the notion of lower rates for longer is bullish for stocks, it is also bullish for gold and precious metals. Thus far, gold has held up well in spite of stronger equities in what could be a sign of underlying strength. By the same token, one has to wonder just how much stocks may have left in the tank.

 

Any signs of weakness in equities could potentially send more investors running for gold and other perceived safe havens, and gold may simply be biding its time before another major push higher. The current dip in gold may prove to be nothing more than another great buying opportunity. 

The Week Ahead In Gold

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The gold market continues to show several signs of significant underlying strength and appears poised for further upside. With the $1400 per ounce level within site, the bulls will likely continue to push for higher prices as ongoing risk aversion keeps buyers on their toes.

 

Investors are getting numerous mixed signals currently, and some significant market volatility could potentially be in store. While Friday’s Employment Situation report showed the U.S. added 287,000 jobs in June and was far beyond consensus estimates, the reality is that a large number of people have simply given up and are not actively looking for work.

 

Stock investors cheered the release of the non-farm payrolls data, and drove the S&P500 to within easy striking distance of fresh all-time highs. On the other hand, however, interest rates remain near all-time lows and thus far have not shown signs of bottoming.

 

In other words, the bond market is saying economic troubles may still lie ahead while the stock market is choosing to shrug off many of the numerous issues that could potentially weigh on global markets.

 

This divergence between stocks and yields will likely not last very long, and at some point something’s got to give.

 

While the gold market has many reasons to see higher price levels, risk aversion and concerns over the global economy are likely one of the main drivers currently. It would seem that both the treasury markets and the precious metals markets see challenges ahead.

 

The fact that stocks recovered almost immediately from the sell-off seen following the June 23rd Brexit referendum may not point to underlying strength in equities or companies, but rather the fact that stocks may just be the only game in town right now.  

 

With the ten year note yielding less than 1.4 percent, many investors seem content taking their chances with equities.

 

Unfortunately, the rally in equities remains vulnerable to an abrupt end, and a reversal that could make 2008 or 2009 look like a day at the beach.

 

Investors are already looking to gold and other perceived safe havens for refuge, and should the stock market bubble suddenly pop, gold could potentially see a massive influx of investment capital.

 

Perhaps continuing to fuel the stock market bubble is the notion of lower rates for longer. Even in spite of Friday’s non-farm payrolls data, many key economic indicators point to sluggish growth. Given ongoing difficulties in the U.S. and the state of the global economy, it is difficult to imagine a scenario in which the Fed would become more aggressive regarding monetary policy.

 

So for now, it seems that the easy money spigot will remain fully open, and if necessary, the central bank could even cut rates again in the future.

 

The current situation with interest rates could be considered bullish for both stocks and gold, with some key differences.

 

Rates are not likely to rise by any significant amount anytime soon, and that may keep gold and precious metals on the offensive. On the other hand, however, stocks may only run so far before extreme valuations and even a hint of higher rates take their toll.

 

The bottom line may be this: Equity investments here could be extremely risky given the upside seen in stocks in recent years and the economic weakness seen around the globe. Gold, on the other hand, could be at the beginning stages of a prolonged bullish cycle that could potentially see prices several hundred dollars or more per ounce higher than current levels.

 

Given the uncertainty surrounding the possible effects of Brexit, the spread of negative interest rates and a weak global economy, what do you think is the better bet?

The Week Ahead In Gold

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The gold market may be poised for a retest of recent highs after posting another solid gain of nearly 1.5 percent in Friday’s trade. Gold had a particularly strong showing to end the trading week, as investors geared up for the long Fourth of July Holiday weekend. This week may bring more follow-through buying and gold may find itself at the beginning of a long and extensive leg higher.

 

More than a week has now passed since the historic Brexit vote was finalized, and markets are still trying to make heads or tails of the potential implications. Calmer heads have prevailed in equity markets in recent days, although it remains to be seen whether or not stocks can once again challenge previous all-time highs. The recent strength in gold and decline in interest rates just goes to show that investors remain very nervous and there is a strong degree of risk aversion present.

 

Increasing discussions of Scotland and Northern Ireland seeking independence from the U.K. following the Brexit vote will likely only add fuel to the fire, and global equities and risk assets will remain quite vulnerable to further selling.

 

In the current state of global economic affairs, it is difficult to imagine anything other than very supportive central banks. The U.S. Federal Reserve cited the risks from Brexit in its latest statement in which the central bank elected to keep rates at current levels. The Bank of England and the European Central Bank may both now have to utilize additional stimulus measures in order to try to boost output and stabilize their respective economies.

 

The notion of more quantitative easing in Europe and further stimulus measures by the People’s Bank of China may keep the Federal Reserve on hold for longer than originally anticipated. The ongoing scenario of low rates and further QE may keep a floor under gold prices for the foreseeable future.

 

This week, markets will pay close attention to a number of key data points, perhaps the most significant being the U.S. Employment Situation report on Friday. The non-farm payrolls data for May was a bad miss, showing an addition of just 38,000 jobs. Consensus estimates are looking for an addition of 180,000 jobs in June, with the unemployment rate steady at 4.7 to 4.8 percent.

 

While a lower than expected number may drive further fears about the U.S. economy, it could potentially boost stocks as it may be yet another reason for the Fed to hold rates steady, or even cut them again in the future.

 

Such a scenario, however, is very demonstrative of just how dependent equity markets have become on “easy money.” This begs the question of just how much further equities may be able to climb given stagnant economic conditions and a lack of profit growth.

 

Given the current number of unknowns that have the potential to drive global markets, investors may continue to reallocate assets and much of that capital could find its way into gold and other perceived safe havens.

 

With the rebound seen in stocks this past week after being heavily sold-off, the markets may tip their hand sooner rather than later. It may become a “do or die” time for stocks, which will need to start making fresh highs in order to keep investors interested. If stocks are unable to mount additional upside, the selling could resume and gold could potentially be off to the races. 

The Week Ahead In Gold

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“Brexit” has become a reality. Now what? That is the question being asked by investors around the globe following the historic vote by the people of Great Britain.

 

Things took a dramatic turn late last week from the recent optimism being expressed by investors. Heading into Thursday’s vote, it seemed the “remain” camp had a distinct edge and the U.K. would remain a member of the European Union.

 

Things started heading south quickly on Thursday night as the tallying process got into full swing. Global markets were paying close attention as the results started being compiled, and significant volatility was seen in stock index futures, interest rates, currencies and other markets.

 

At one point Thursday night, the broad market S&P 500 futures contract went “limit down” and trading was halted. The British Pound was heavily punished as well, hitting its lowest level seen in over 30 years at one point. Interest rates fell and crude oil was sold off.

 

Gold and silver, on the other hand, saw heavy buying.

 

By the time the dust had settled in the U.S. on Friday, the S&P 500 had lost over 3.5 percent, the Dow Jones declined by 3.39 percent and the Nasdaq shed well over four percent. Crude oil lost over five percent while the British Pound was slammed for a decline of nearly eight percent (well off of the session lows).

 

Carnage- complete and total carnage- is really the only way to describe much of the price action seen in markets on Friday.

 

The immediate question now is: Is the worst of it over?

 

Probably not…

 

The fear of the unknown is a powerful thing, and the uncertainty surrounding the implications of Brexit are far-reaching. The reality is that no one can say for sure just how this will affect global financial markets. The potential “ripple” effect is already being seen as Scotland is reportedly revamping efforts for an independence referendum.

 

Who will replace British Prime Minister David Cameron?

 

How will the Brexit affect U.S and Canadian businesses in Europe?

 

Will this weaken the European Union?

 

These are just a few of the major questions that investors will be complicating. Unfortunately, the answers to these questions may not come as quickly as many hope.

 

The hard truth is that this process will not take weeks or months, but several years.

 

In the meantime, it is impossible to say just what effects this historic vote will have on the global economy.

 

One thing is for sure, though, and that is that the vote will leave a number of unanswered questions and may add considerable uncertainty to global markets.

 

Investors don’t like unknowns and they don’t like uncertainty.

 

Just look how quickly investors dumped stocks and risk assets and sought the perceived safety of treasuries and gold.

 

Gold saw gains of nearly 4.7 percent on Friday, while silver rose over 2.5 percent.

 

This week could potentially see more panic selling as investors try to gauge the ramifications of the Brexit vote and stocks may remain under pressure as Brexit overshadows any economic optimism. Oil and other risk assets may also see further selling, while treasury yields are likely to remain on the lower side of the ledger.

 

Who knows just how far the British Pound may fall….

 

Gold appears headed for higher ground as investors may seek out alternative assets in which to put capital to work. An increase in market volatility could potentially drive flight to safety buying in the yellow metal, and a significant leg higher in gold could be in the cards. 

The Week Ahead In Gold

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The gold market saw some heightened volatility last week as a number of potentially significant issues are driving investor anxiety. While gold finished the week well below the highs, the technical and fundamental backdrops remain constructive and further upside could be in store.

 

Last week’s FOMC meeting was the data highlight of the week, and to no one’s surprise, the Fed elected to hold off on an additional rate hike. While a June hike had been all but completely off the table, odds of a July hike are extremely low and another increase in the Fed Funds rate may not be seen this summer.

 

While many have been quick to blame the May non-farm payrolls report for the lack of action from the central bank, the reality seems to be that there are numerous factors working against the economy currently and that the pace and timing of any additional rate hikes could be even slower than those in the dovish camp originally thought.

 

Of particular note following this FOMC meeting was the absence of language suggesting another hike is imminent as well as another downgrade of the central bank’s economic outlook.

 

The Fed did little, if anything, to provide markets with any further clarity on the potential timing of the next hike. It seems investors will have to just wait and see.

 

In the meantime, investors and global markets will now likely turn their attention to another elephant in the room. The highly anticipated “Brexit” referendum will be taking place this week on June 23rd, and could have far-reaching implications for global markets.

 

The vote has led to increasing risk aversion and markets could get more volatile over the next few days. Investors have shifted billions of pounds out of the UK since the “Brexit” battle began and more capital is likely to be pulled this week as the vote approaches.

 

While it is very difficult to say just how a yes vote could impact global markets, there could potentially be a significant decline in the pound, and equity markets could possibly see selling on a large scale as the uncertainty over such a vote drives investors to the sidelines.

 

Gold could potentially see heavy inflows as market participants seek out alternatives, and silver as well as other precious metals may also benefit from their perceived safe haven status.

 

The gold market did see a large gap higher this past week but surrendered those gains throughout the session as stocks recovered. Gold remains within striking distance of those highs, however, and sitting just below the $1300 level looks poised for another run higher.

 

Given the current state of the global economy along with the wildcard of this historical vote, it is difficult to make a case against higher gold prices. Unfortunately for investors, current economic conditions may simply be a taste of what is to come for some time: Slow growth, negative interest rates, little inflation and more stimulus.

 

In our opinion, this is a great recipe for appreciation in the price of gold and silver and these metals could see steady buying interest as equity markets decline and economic reality sets in. 

The Week Ahead In Gold

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This week could be a pivotal one for the gold market as the bulls will look to build on solid strength seen over the last few trading days. Gold closed the week at $1275.90 per ounce and is within striking distance of the early May highs above $1300 per ounce. Changes in interest rate expectations have been a significant factor in gold’s recent rise, and will likely continue to have a strong influence on precious metals markets.

 

Following the release of the latest nonfarm payrolls data which showed the U.S. added just 8,000 jobs in May, it is difficult to imagine the Fed taking action at their meeting on monetary policy this week. In fact, a June rate hike appears to be completely off the table and odds of a July hike are slim.

 

While Fed Chairwoman Janet Yellen has remained upbeat on the labor market, concerns over its health could now potentially keep the central bank on hold until September or even beyond.

 

Investors will be hoping to get more clarity from the Fed this week at the conclusion of the FOMC meeting. The central bank will likely stick with the same type of approach it has in the past, and will reiterate the idea that any further hikes in interest rates will be data dependent.

 

While the uncertainty surrounding rates is certainly a big issue for investors, there are other issues at work currently that could also keep a floor under gold prices. Expanding global negative interest rates could keep driving investors to hard assets like gold. According to bond king Bill Gross, bond yields are at their lowest level in 500 years. In a recent comment, Mr. Gross referred to $10 trillion of negative yielding sovereign bonds as “a supernova that will explode one day.”

 

Clearly, the current accommodative environment along with expansion of negative yields is bullish for gold, and more investors may seek its refuge.

 

Currency markets could see some significant volatility this week as the “Brexit” referendum approaches and the Fed releases its decision on rates. The dollar index saw a steep decline in the aftermath of the weak May jobs report, and could potentially be gearing up for a retest of the May lows.

 

A breakdown in the dollar below those lows could possibly see a fresh and significant leg lower in the greenback. Recent weakness in the dollar has likely been a large factor in gold’s rally and further downside in the currency could be the fuel that lights the fire of a much larger scale rally in gold.

 

Stocks may be closely scrutinized this week as well, as the broad market S&P 500 has backed away from previous all-time highs. While stocks remain at lofty levels, they have yet to mount a significant attempt at an upside breakout. A breakdown, on the other hand, could potentially send investors running for the exit signs and could drive further buying in perceived safe havens such as gold and silver.

 

Markets may see some quiet ahead of the Fed this week, with the potential for volatility as the FOMC meeting conclusion approaches and in its immediate aftermath. In spite of some possible short term volatility, gold appears to be positioned for further upside and seems to have many key global issues working in its favor.

The Week Ahead In Gold

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The gold market could see some follow through this week to significant buying seen on Friday following a disappointing U.S. Employment Situation report. Fresh buying along with some short covering drove gold prices higher by over $30 per ounce in what could be the beginning of a move back to recent highs or beyond.

 

On Friday, U.S. nonfarm payrolls were reported to have grown by only 38,000 jobs while the unemployment rate registered a reading of 4.7 percent. To put this reading into context, consensus estimates were looking for an increase of about 158,000 jobs in the month of May.

 

While the unemployment rate did decline, it declined not from American workers finding jobs but rather from more people leaving the workforce.

 

Any way you slice it this report was a significant miss and calls into question the Fed’s plans for the next hike in interest rates. While the central bank had recently sounded more hawkish (which was perhaps in an attempt to prepare markets for a June hike), they will likely have to take a wait and see approach. Odds of a July hike appear to be significantly lower at this point, with the next rise in rates coming in September or even beyond.

 

Investors will be paying very close attention to the domestic data stream over the coming weeks, looking for any further clues as to the timing and pace of additional hikes. Global economic data is also likely to be closely scrutinized, and any further weakness out of China in particular could weigh on investor sentiment and global equity markets.

 

While stocks were lower on Friday following the jobs report, equities may still attempt a push to previous all-time highs. Higher stock prices have been a drag on gold prices, and equities could potentially be on the verge of a retest of last year’s highs. On the other hand, a failure of stocks to mount a significant challenge of those highs could potentially drive investors to take profits and put capital to work elsewhere.

 

With uncertainty surrounding the pace and timing of another rate hike and the upcoming

 

“Brexit” referendum, stocks and risk assets could potentially experience increasing volatility in the coming sessions. As investors get more anxious, perceived safe havens like gold and silver could potentially attract more capital inflows.

 

Finally, precious metals investors will be watching the currency markets this week.

 

Following a false breakdown below key support early last month, the dollar index had been trending higher as interest rate expectations were in a state of flux. With Friday’s jobs data all but eliminating the chances of a June hike, the dollar index plunged, falling over 1.6 percent.

 

This sharp decline in the greenback could potentially send the dollar index back to last month’s lows. A breach below the lows of early May could be very significant. Looking at the bigger picture, a drop below the 92 area on the dollar index could, from a technical standpoint, drive more selling in the dollar.

 

Any dollar weakness could be a significant bullish catalyst for gold, silver and other precious metals. Following Friday’s dismal labor data, investors may be quick to sell the dollar if additional key data points disappoint.