The Week Ahead In Gold

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The question of whether the Trump administration would in fact be able to make good on a key campaign promise regarding tax reform has been answered. The President has signed the new tax bill into law, and with it comes a host of changes to the U.S. tax code.

 

The legislation has faced numerous hurdles, and opinion of the bill is widely split along party lines.  Democrats seem to be of the opinion that the bill really only benefits the top earners, while republicans seem to think the bill will benefit nearly all taxpayers. The slashing of the corporate tax rate down to 21% from 35% could potentially make big waves for the economy, although it remains unclear just how much of a ripple it may produce.

 

Some companies have already announced bonuses to be paid out to employees following the passage of the tax bill. Other companies have also raised their minimum wages. It will likely take some time before any real trickle-down effects are seen. But that is the hope: that corporations keeping more money will use those tax savings on growth, investment and higher wages-all major economic drivers.

 

Now that the tax legislation has become law, investors will once again turn their attention elsewhere. The current geopolitical climate, the cryptocurrency craze, higher stocks and the notion of rising rates will all be considered by investors as the year draws to a close. In fact, the last few trading sessions of the year will likely feature slowing volumes, and could see some heightened volatility based on a lack of any significant volume.

 

The gold market has been moving higher once again, as the bears have not been able to capitalize on any recent weakness. The market has stood its ground quite well in fact, which would seemingly be indicative of underlying strength. The question is: does the market have enough of a tailwind to penetrate recent highs and make a sustainable move higher. Perhaps that question will be in answered in the first quarter of 2018.

 

Heading into the New Year, the aging stock bull market continues on while the geopolitical scene remains extremely challenging.  There is also, of course, the Fed and whether or not it decides to stick with its plans for another three rate hikes in 2018. Investors will no doubt have plenty of issues to chew on as 2017 comes to an end.

 

Gold investors seem content biding their time until the next shoe drops. The next major bullish catalyst for gold could come in several different forms, from a stock market collapse to an escalation with North Korea to signs of recession. Whatever the case may be, the market could be close to a substantial breakout. With the potential for a stock market reversal or even collapse, geopolitical tensions that rival those of the Cold War and other economic issues, such a breakout in gold would arguably be on the upside. If such a move does occur, the market could be off to the races, and could not only challenge but possibly exceed previous all-time highs in a short period of time. 

 

The Week Ahead In Gold

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All eyes will be on Washington D.C. this week, as the Trump administration gets ready to have a major piece of tax legislation passed. The highly touted tax reform bill would cut tax rates and lower the corporate tax rate from 35 percent to 21 percent. A major decrease in the rate paid by corporations could potentially spur further economic growth and investment, and investors appear to be confident at this point that the proposed legislation will become law.

 

The increasing optimism over the economy has been reflected in higher stock prices and ongoing willingness on the part of investors to add to long equity positions despite the aging bull market. The market does not seem to have reached a level of exuberance yet, however, that could be indicative of a top. Although numerous analysts have made calls for the market being at or near its highs for this bull market, stocks have been very resilient and so far have not shown any significant signs of reversing course. Other analysts have taken the other side of the trade, calling for stocks to continue moving higher-even substantially higher-from current levels.

 

Whatever the case may be, the path of least resistance in stocks remains higher until proven otherwise. Should equities continue their seemingly endless march higher, gold and other perceived safe haven asset classes may have a difficult time gaining any real traction. That being said, gold investors appear quite content scooping up the metal on any significant dips. In addition, while the market did see a bit of a washout recently, that selling did not do any significant chart damage. On the contrary, that sell-off could possibly indicate a bottom has been reached.

 

Although gold has a number of bullish, long-term factors working in its favor, it is also contending with a number of short-term influences that have kept a lid on prices. Higher stocks, strong risk appetite and the notion of higher rates have all weighed on the metal in the short-term. Long-term investors appear quite content buying fold in its current range, however, and the lack of any significant moves lower would seemingly indicate a strong degree of market equilibrium.

 

Whether it’s today, next week, next month or next year, that equilibrium will change at some point. And when it does the case is very strong for substantially higher prices. Any number of issues could act as the catalyst for a major upside breakout, including a stock market crash or reversal, ongoing dollar weakness, a cryptocurrency crash, recession or geopolitical factors. The fact is that this is a great example of where the patient, long-term investor could be handsomely rewarded.

 

In the near-term, gold will likely take its cues from stocks, the Fed and any fresh geopolitical news. As the holidays approach, trading volumes will likely decrease significantly, which can also fuel a high degree of market volatility. In addition, year-end selling or position squaring may also be a factor for markets in the weeks ahead going into the New Year. 

Gold, Bitcoin, or Both

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The precious metals space has been challenged with a new asset class whose popularity, like its price, continues to gain momentum. Of course, we’re talking about cryptocurrencies. The fact that we continue to see cryptocurrencies gain both widespread appeal and price gains have dumbfounded many commentators who struggle to apply any traditional metrics of valuation or rationale to their price. As the hysteria rages on and the initial outlier investment attracts new participants by the day, its worth discussing the misconceived link of bitcoin or other cryptocurrencies taking over the haven appeal of precious metals.

 

The link to gold and other precious metals is a weak one, and for one reason. Simply, gold prices in US dollars are behaving as expected at present time. The same can not be said for cryptocurrencies. As many in the media or proponents of the new investment space have tried to portray that cryptos like bitcoin are taking the place of gold, they are missing a key distinction. Gold and precious metals are assets whose prices are predominantly driven by the sentiment and comfort level of the stability of the global economy and certain financial markets. It also historically exhibits an inverse relationship to the worlds reserve currency. The US dollar index is down 8.1% year to date, and gold is up 9.5%.

 

As we end 2017 and we begin to receive outlook and commentary for 2018, there seems to be a common place theme. A coordinated global economy will continue to gain momentum in 2018. This will lead western central banks to continue to raise interest rates. The US Federal Reserve just this past week anticipates three rate hikes in 2018, and at this point in the economic cycle raising rates in coordination with stronger growth, its not anticipated to hinder the economy just yet and is not anticipated nor stunt the equity markets. Add into the mix an expected US corporate tax cut, and we have an environment supportive of the worlds reserve currency, the US dollar. Unfortunately, that scenario doesn’t scream higher gold prices.

 

Alternatively, the only thing driving the price of cryptocurrencies currently is an onslaught of demand fueled by individuals looking for a quick return. Furthermore, this isn’t an attack on the idea of digital currencies and the role or potential they could play in a fast evolving and technology driven global economy, but the price stability and role as a safe harbour for capital is misguided and misrepresented. For a currency to evolve or for utility to be created from this popularized asset, it must exhibit some stability, which it has failed to do. Additionally, an asset that appreciates this quickly purely on increased demand is vulnerable to the same move to the downside.

 

We are not calling for an end to the rally in cryptocurrencies, or even suggesting that those who have participated in it are ill-informed. Its commendable to the numerous initial investors that were in front of this trend and profited massively from being ahead of the curve. That said, an asset that appreciate 17 times year to date in Canadian dollars, and that figure will be different depending on when this is read, highlights more of a craze driven rally than safe-haven.  To circle back to precious metals, in these exuberant equity markets an uncorrelated proven safe-haven like gold continues to serve a key role in any diversified portfolio. But to the question of gold or bitcoin, that’s up to the investor, but there’s no reason its one or the other given they’re distinctly different in nature.

 

The Week Ahead In Gold

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The gold market has remained on the defensive in recent trade, as a combination of factors and a lack of any fresh, bullish catalysts weighs on prices. Higher stock markets, potential tax reforms and overall robust risk appetite have all played a part in gold’s recent lack of upside, and may continue to do so for the time being in the absence of any fresh news.

 

Investors are looking ahead to the highly anticipated Federal Reserve meeting this week, at which the central bank is widely expected to hike interest rates by another 25 basis points. This would bring the key rate to 1.25-1.50% as the Fed continues to look ahead at normalizing monetary policy. Although a rate hike appears to be completely “baked into the cake,” investors will likely be far more concerned with the Fed’s commentary following the announcement on policy.

 

The central bank will likely offer some discussion on not only the potential path of rates going forward, but its assessment of economic conditions as well.  Some of the key issues that the central bank may address include the inflation picture and tax stimulus. There has already been some discussion about the Fed becoming more aggressive regarding monetary policy if tax stimulus is in fact passed, and markets will be very interested in any type of guidance it chooses to provide. The ongoing lack of inflation may also be a focal point, although prices have recently shown some signs of picking up.

 

The gold market has a tendency to come under pressure heading into a rate increase, but then often rebounds significantly once the decision has been made official. This time around may be no different.

 

Stocks have thus far not demonstrated any significant signs of a collapse or reversal, and appear poised for further upside. The ongoing ascent by equities is likely having a substantial effect on gold, and the yellow metal may not be able to mount any sustainable rallies until stocks appear to have topped.

 

Also potentially having a negative impact on gold right now is the hype surrounding Bitcoin. Various exchanges have now launched futures contracts on the cryptocurrency, and prices could potentially go higher-much higher-before possibly crashing back down to earth. The current state of euphoria regarding that market has is yet another clue about a possible bubble, and that bubble may end badly for a lot of uninformed investors.

 

On the plus side for the metal, the geopolitical landscape remains complicated, to say the least. The recent decision by the Trump administration to move the U.S. embassy to Jerusalem has enraged many in the Middle East, and protests are ongoing.

 

And of course, North Korea remains a very critical issue that must be dealt with.

 

Against this backdrop, gold is not likely to fall too far in price. In fact, recent declines in the metal could potentially represent an excellent long-term buying opportunity for the patient investor. The run higher in stocks will eventually fizzle, and Bitcoin may prove to be nothing more than the next big bubble. Once some of these market dynamics begin to change, the yellow metal will have its chance to shine once again, and that may come sooner rather than later. 

The Week Ahead In Gold

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The gold market will have plenty to consider as the new trading week gets under way. The U.S. Senate has passed its version of a tax overhaul, paving the way for republicans to implement significant corporate tax cuts and other changes. Now, the Senate and the House of Representatives will have to iron out any differences between their plans before the new code can become law. Despite this, the Senate vote is another major step in the right direction for the Trump administration as it tries to make good on a key campaign promise.

 

Speaking of the Trump administration, on Friday General Michael Flynn, a former Trump campaign adviser, pleaded guilty to lying to the FBI. The latest indictment by special counsel Robert Mueller and his team could potentially have a significant impact on the course of the investigation going forward. It is widely thought that Flynn may have damaging testimony on other key players in the campaign, including other members of Trump’s inner circle.

 

News of the guilty plea sent gold moving sharply higher, and fueled some selling pressure in stocks. That initial knee-jerk reaction could fade as the new trading week gets under way. On the other hand, any new indications of potentially damaging evidence against the campaign could fuel further selling in stocks and risk assets while giving a boost to gold and other perceived safe haven assets.

 

Outside of the geopolitical sphere, stocks and the dollar could dictate price action in the gold market this week. The dollar index has been trending lower, and could potentially be on the verge of a major downside breakout. The dollar will likely be driven by further developments regarding the tax overhaul, and if a deal seems likely the dollar may regain some lost ground. On the other hand, if a tax deal begins to hit some significant snags, it could add further selling pressure to the greenback, adding to an already weak technical backdrop. A break below the lows seen in September could trigger a more aggressive move lower in the currency, and could act as an important catalyst for any upside breakout in gold.

 

Stocks have thus far remained very resilient, and may continue their winning ways in the absence of any fresh, bearish news. Tax overhaul deliberations could play a major role in stock market in the weeks ahead as well. Anticipation of a deal could keep the bull market going, while some analysts believe that lack of a deal being reached could potentially act as the last straw for the equities market.

 

The gold market remains stuck in its recent trading range, but as more bullish geopolitical and economic factors add up, the market could be gearing up for a significant move higher. The market is trading near key levels once again, and if buyers absorb any downside attempts at current levels it could be indicative of underlying market strength.

 

The next few weeks going into the end of the year could see muted price action across asset classes in the absence of any fresh, major news. News has not been difficult to come by, however, and with each trading day comes the possibility of a major market shakeup given the current geopolitical climate along with ongoing domestic issues being seen in the U.S. 

The Week Ahead In Gold

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Investors will get back down to business this week, following the Thanksgiving Holiday shortened trading week. Trading may begin to slow down in the coming weeks, as the holidays and year-end approach.

 

If you have been following the gold market in recent months, you have likely also been seeing considerable coverage of the popular cryptocurrency, Bitcoin. In fact, some analysts have even begun comparing the digital currency to gold, and some have suggested that Bitcoin and similar digital currencies are the wave of the monetary future.

 

With prices continuing to rise and reaching levels near $10,000, this really comes as no surprise.

 

Talk about putting the cart before the horse…Given the extensive coverage surrounding these products and numerous comparisons to gold and other assets, it seemingly makes sense to try to put such investments into perspective.

 

Start by considering this: Gold has been considered a reliable store of wealth and value not for years, decades, or even centuries, but for thousands of years. The yellow metal is recognized and valued all over the globe, and can be used as a medium of exchange anywhere on the planet.

 

Bitcoin and other cryptocurrencies, on the other hand, have only gotten started in the last decade and arguably still have a lot to prove. They may be vulnerable to cybercriminals, programming errors and other issues. Although some merchants have begun accepting these products as a means of payment, widespread use of digital currencies is far from a reality, and numerous challenges will stand in the way of these products becoming more mainstream.

 

Now, let’s talk about bubbles for a moment. A bubble, as defined by Investopedia, is “An economic cycle characterized by rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior.”

 

Could such a definition fit the current cryptocurrency rage? You be the judge…

 

Others might define a bubble as an asset that has been inflated by speculators, and has not been purchased as a store of value. How many people that buy Bitcoin or other cryptocurrencies plan to later sell at a profit? How many believe they will sell at a large profit sometime in the near future? How many plan to simply buy and hold for years or decades to come?

 

How about this: Can cryptocurrencies provide a hedge against inflation? How about deflation? What about declining fiat currency values? Could they be used to purchase food, water or fuel in the event of a major crises? What about a massive attack on the global internet infrastructure?

 

It is very likely that the Bitcoin and cryptocurrency rage could continue, until it doesn’t. The bubble will get bigger, bigger and even bigger until the day it eventually does what all bubbles do: Pops and leaves a ton of investors wondering what just happened.

 

You worked hard for your investment dollars, use them wisely. If you are looking to add diversity to your portfolio with an asset class that may provide a hedge against a number of geopolitical and economic issues while also having the potential for significantly higher prices, gold is an obvious choice.

 

If you want to speculate on rising prices in an asset class that has no significant history or inherent value, then Bitcoin may be a great bet.

 

You make the choice. But if you decide to speculate, make sure you do so with capital you can afford to lose. 

The Week Ahead In Gold

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The gold market is getting the week started off on the wrong foot, as prices are losing ground as the dollar strengthens and crude oil declines. This week is a short week due to the Thanksgiving Holiday, and price action could potentially see some added volatility due to lighter trading volumes.

 

The gold market appears to be in an ongoing stage of accumulation. Recent data from the CFTC seems to suggest that hedge funds have been buying gold again, and the net long position in the market is at a modest multi-week high. Although recent buying by larger players may not be anything too exciting, it could be a healthy thing for the market and could potentially point to an upside move that may be more sustainable.

 

As is usually the case, the bigger picture is what’s most important here, and the motivations for funds and large players to be accumulating gold could fuel significantly higher prices. It would seem that many investors are looking to take a more cautious approach going forward as numerous economic and geopolitical issues could warrant such an approach.

 

The aging bull market in stocks could get hit hard by a failure of U.S. lawmakers to pass tax reform. Estimates vary on just how much of an effect this could potentially have, but it seems to be a major issue that could possibly become the catalyst for a major reversal in equities. Not only does the U.S. have a number of economic and geopolitical issues to contend with, but recent developments in the Eurozone could also weigh on global markets and risk appetite.

 

The recent collapse of German government coalition talks could revive the widespread risks to the region that had seemed to be put on the backburner in recent months. The election of France’s Emmanuel Macron seemingly calmed investor psyche regarding risks in the region, and much of the risk premium that was attached to trade regarding Europe has been removed in recent months.

 

Uncertainty now surrounding the zone’s strongest and most influential nation could bring back much of that risk premium, and could have a far-reaching impact on global markets. After all, it wasn’t long ago that many investors and money managers felt that the potential for a breakup of the EU was a real possibility that needed to be priced into financial markets. Either way, the uncertainty now being seen going into the end of the year is likely to dampen investor appetite for risk and may become more of an issue if further troubles are seen.

 

The failure of coalition talks in Germany and the recent issues seen in Spain regarding Catalonia could be the first wave of renewed geopolitical issues in Europe and investors will likely keep an eye on the region for more symptoms of turbulence.

 

Long-term gold investors will likely remain happy to buy gold at current levels or on any significant dips. In addition, a move beyond recent highs could also potentially set the stage for more aggressive buying as the market’s technical picture improves. The potential for a major reversal in stocks, a weaker dollar and global geopolitical issues will all likely keep the market on solid footing. 

The Week Ahead In Gold

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The gold market will continue to monitor Washington this week, as the divergence between House and Senate tax bills seems to be widening. Major tax reforms were an area of focus for the Trump campaign, and a year after Trump was elected President he is trying to make good on that campaign promise.

 

The fight for tax reform is not going to be easy, as disagreements remain on some major issues. In addition, implementation of key parts of any such legislation may need to be phased in rather than being put into place with immediate effect. If the various parties involved are not able to move closer to a deal, or if it appears that any deal may take more time than originally anticipated, it could potentially weigh heavily on the dollar while providing gold a boost. Stock markets could feel some heat from further delays as well, and any signs of stocks topping out could also be bullish for gold and other perceived safe haven assets.

 

Now that President Trump has appointed Jerome Powell to be the next Fed Chair, markets will be looking for any clues on the central bank’s plans regarding monetary policy. Although Powell is widely considered to be someone who will not rock the boat, it remains unclear if he may bring any significant changes in opinion to the central bank. Investors may pay close attention to this week’s inflation data, as the latest readings on both the Producer Price Index and Consumer Price Index are set for release.

 

Consensus estimates are looking for a rise of .1% in month-over-month consumer prices, with the core reading rising .2% on the month. Year-over-year core CPI is expected to remain at 1.7%. Assuming the inflation data is in line with estimates, expectations for monetary policy are likely to remain unchanged. Any upside surprises, however, could potentially fuel speculation about a more aggressive Fed and a rethinking of current rate expectations.

 

For now, the gold market may remain range-bound in the absence of any fresh, bullish catalyst. The market has been moving sideways for some time, with both the bulls and the bears failing to make any significant headway. The longer the market remains range-bound, however, the more substantial any breakout could be.

 

Although numerous issues may potentially favor an upside breakout, the gold bulls may have more work to do before a sustainable upside move can take place. Ongoing all-time highs in stocks and robust appetite for risk continue to be major hurdles for higher gold, and it may very well take a significant stock market crash or decisive reversal in equities to fuel a substantial rally in the yellow metal. Given the age of the bull market and the likelihood of the next recession coming down the pike, meaningful downward pressure in stocks could come sooner rather than later.

 

In the meantime, the gold bulls may simply remain content buying any significant dips in price as they patiently await the next cyclical bull market getting started. 

The Week Ahead In Gold

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The gold market remains in a fairly tight trading range, and while price action in the market may appear dull at first glance, it could also be providing some important clues.

 

The gold market has not seen any significant selling pressure despite higher stocks, a stronger U.S. Dollar and the notion of higher rates. All of these factors could be considered bearish for gold and other hard assets, yet the market has done a remarkable job of hanging in there.

 

The inability by the gold bears to push prices lower could be considered significant. It seems that every time the gold market takes any type of dip, buyers are there ready and waiting. Although the current pressure from buyers and sellers appears to be evenly matched, that will eventually change. At some point, one side will be overwhelmed by the other, and a substantial move in the market could take place.

 

The question is: Who will it be? The bulls or the bears?

 

Despite the current headwinds working against gold, the market does also have a number of tailwinds that could help propel prices higher. In fact, markets that spend any significant time in a trading range often see sizable moves once that trading range is breached. This could prove to be the case with gold, and such a move could signal the beginning stages of a protracted bull market in the metal. In the meantime, long-term investors remain more than willing to step in and buy any dips, and unless that changes the prospects for the metal in the coming months and years look very good indeed.

 

Among the potential issues that could fuel an upside breakout in gold are questions over the Fed and its plans regarding monetary. Just days after President Trump named Jerome Powell to be the next Fed Chief, William Dudley, a very influential member of the Fed and advocate for monetary stimulus has announced he will be stepping down much sooner than originally anticipated. While Dudley’s departure could signal a more aggressive Fed in the coming months and years, Jerome Powell is widely viewed as someone who will pick up where Janet Yellen leaves off. Either way, the uncertainty surrounding the central bank could keep gold on the offensive.

 

The investigation into potential Russian meddling in the U.S. Presidential campaign has also taken a more aggressive turn in recent weeks, with the first indictments being handed down against two lobbyists who formerly worked for the Trump campaign. These charges could potentially be the first of more to come, and the issue could become an even larger distraction for the Trump administration as it tries to pass key tax and other legislation.

 

Should the investigation intensify and should Robert Mueller’s findings point to additional people close to Trump, the effects on markets could be significant. Of course, if Trump is completely vindicated, it could also have the opposite effect and could fuel further buying in stocks and additional economic optimism.

 

The current geopolitical landscape-both in the U.S. and abroad-may keep a floor under gold prices and could potentially fuel buying in gold and other perceived safe haven assets. 

The Week Ahead In Gold

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This week could be an interesting one, as news hit over the weekend that the special counsel investigation, led by Robert Mueller, has filed the first charges in its investigation of possible Russian collusion in the 2016 U.S. Presidential election. The first indictments could come as early as Monday, and speculation over the weekend of who the target or targets may be has been rampant.

 

Anyone charged could be taken into custody as soon as Monday, and the initial charges could potentially be just the first wave of more to follow. Of particular note is the fact that the charges were approved by a grand jury, who felt there was sufficient evidence in the case to proceed. Prosecutors will typically only bring charges before a grand jury if they feel strongly about the case and the likelihood of a conviction. The initial charges have come much faster than many had expected, just five months into the special investigation.

 

It remains unclear how an indictment may affect financial markets. Of course, the target of the initial charges could be extremely important. Some analysts have suggested that the initial target or targets could be used to “flip” on others also possibly involved. Whatever the case may be, these could be the first dominos to fall and with any cooperation, the case could move ahead at an accelerated pace.

 

As the case moves forward, President Trump will either eventually be totally vindicated or shown to have been somehow complicit in the collusion. A complete vindication could potentially fuel further gains in stocks, as it would allow the President to move forward with his agenda of tax cuts and fiscal spending without the dark cloud of suspicion hanging over the administration.

 

If further investigation does point towards Mr. Trump or key members of his administration, appetite for risk could take a significant dive and stock markets could decline dramatically.

 

The gold market this week will also be on the lookout for President Trump’s announcement on who will be the next Fed chair. As it stands right now, Jerome Powell is said to be the favorite. Powell is considered to be someone who likely would not rock the boat and who would essentially stay on the current path that has been laid out regarding monetary policy.

 

Of course, any surprises could potentially have a significant impact on markets. Another possible choice, Stanford economist John Taylor, is viewed as being significantly more hawkish and would likely advocate strongly for tighter monetary policy and higher rates. A Taylor appointment could shake investor confidence, and potentially fuel selling in stocks and other assets.

 

Gold prices are approaching some significant support levels and buying activity may pick up on the current dip in price. This week could have major implications for investors, and perceived safe haven assets like gold could potentially see renewed interest. In addition to domestic issues, the global geopolitical backdrop remains supportive for gold as well, as issues from North Korea to Catalonia may keep a degree of risk aversion present in the marketplace.