The gold market will likely take its cues this week from stocks, the dollar and further geopolitical developments. The metal finished last week under some pressure, and further selling to kick off the new trading week is a good possibility.

The potential for major U.S. tax cuts and reforms has been one of the biggest topics from Wall Street to Main Street in recent days. A 51-49 vote by the Senate has paved the way for potential action, and now it will go to the House. The notion of major tax cuts was a major running promise by the Trump campaign, and the administration appears to be getting closer to its objective.

Of course, the idea of major tax cuts and a decline in government revenues begs the question of how the government will finance such legislation. Major reforms could potentially be another issue that the Fed will need to take into account when plotting the path of interest rates. In order to keep an exploding deficit under control, the government may want to see rates remain low for the time being. Without the threat of a significant or sharp rise in rates, gold and other hard assets could possibly see smoother sailing.

And speaking of rates: The question of who may be the next Fed chief is also getting its fair share of attention these days. Although the possibility of current Fed Chairwoman Janet Yellen staying on at the central bank cannot be ruled out, rumor has it that Jerome Powell is the front runner to take over when Yellen’s current term expires. Mr. Powell is seen as being more on the dovish side of the ledger, and he would likely not veer far from current Fed policy. The idea of Powell taking over sent buyers into stocks and bonds, as investors appear comfortable that he would likely stick with the current plan for slow and incremental rate hikes.

The dollar gained solid ground to finish out the week, and further steps towards a tax cut may be bullish for the greenback. Further dollar upside, along with additional stock strength, may weigh on gold prices. Gold may not fall too far, however, as the yellow metal still has numerous bullish tailwinds working in its favor.

The current geopolitical climate may still fuel a degree of risk aversion, and an improving technical backdrop may also keep buyers taking advantage of any dips in gold. If the Trump Administration is not able to implement its planned tax reforms, things could turn sour quickly for stocks and risk assets.

The risk of major, new legislation being unable to pass could keep any declines in gold limited. In addition, the equity market’s resolve at current levels could also be tested. With each new all-time high in stocks, the risk of a major reversal or sudden crash could be on the rise. Any signs of stock market trouble could be bullish for gold, and could fuel a significant rally in the metal as investors seek out alternatives.

Gold finished higher in light action on Monday, as many investors were off for the Columbus Day Holiday. The weekend was, however, filled with action that could potentially impact gold and financial markets, and the buying seen in gold Monday was likely based on safe haven demand.

Over the weekend, thousands of Spaniards protested the recent vote by Catalonia to be independent. Although the events in Spain may not have a direct effect on the U.S. or Canada, they may be a cause for concern. Catalonia represents a significant portion of the Spanish economy-about 20 percent-and if the region does in fact break away from Spain, the resulting economic consequences could be significant.

The vote by Catalonia is just another example of troubles in the EU, and the region will likely continue to face some serious challenges. The potential for other members to withdraw, like Great Britain has, as well as some ongoing banking system troubles and high debt levels could weigh on economic activity in the region.

The U.S. and Turkey over the weekend got into a significant spat over visas, after a U.S. consulate staff member was arrested in Istanbul.  The U.S. froze Turkish visas over the issue, and Turkey responded by doing the same. The freeze effectively blocks travel to the U.S. for Turks, and travel to Turkey for U.S. citizens with few exceptions.

As if these issues were not enough on the geopolitical front, the ongoing war of words between the U.S. and North Korea also continued over the weekend. President Trump has once again hinted at military action, and other nations now appear to be drawing up plans in case war does break out. The threat of a nuclear conflict has not been this serious since The Cold War, and another missile test by the north could potentially draw a military response from the U.S. and its allies.

Although gold has lost ground in recent weeks, the metal is not likely to fall too far given the geopolitical backdrop. In fact, a serious escalation with North Korea could potentially fuel a massive rally in gold and other perceived safe haven asset classes.

Stock markets have thus far maintained their almost indifferent attitude to the potential for war with North Korea, although that could change in a hurry. Currently, stocks are not showing any significant signs of slowing down, and there seems to be increasing talk of another major leg higher in equities before the rally eventually comes to an end.

Markets have a tendency, however, to do the opposite of what is widely expected. Although the current stock bullishness may not have reached euphoric levels yet, the market could be getting closer to the point at which there is simply no one left to be long. Markets have an uncanny way of sucking in every last investor before turning-and turning hard-and the stock market could be drawing in the final wave of investors with every fresh, record close.

The gold market may remain somewhat range-bound in the absence of any fresh geopolitical catalyst. Once stock markets start to reverse, however, the market could see massive capital inflows that could fuel a protracted bull market. 

Gold is starting the week off on a strong note, as the heated rhetoric between U.S. President Donald Trump and North Korean leader Kim Jong-Un has reached a new level. North Korea’s foreign minister stated on Monday that the U.S. has declared war on North Korea, and that the north reserves the right to take countermeasures, including attacking U.S. bombers not in North Korean airspace.

Foreign Minister Ri Yong was reportedly quoted as saying “The whole world should clearly remember it was the U.S. who first declared war on our country.”

The further escalation in tensions between the U.S., its allies and North Korea has reached a level at which a misstep by either side could bring with it disastrous consequences. It seems that the threat of a nuclear conflict has not been this high since the darkest days of The Cold War, and as of right now there does not appear to be a solution forthcoming.

Although current sanctions against North Korea may be causing some economic distress, the country’s leadership appears intent on standing their ground. Although hope remains for a peaceful solution, the idea of some type of armed conflict seems to be more and more likely.

Markets do appear to be taking the threat from North Korea more seriously, as stocks are lower while treasury yields are sinking. Although appetite for risk may be waning, investors are not yet in panic mode. That could change quickly, however, with provocative actions by either side.

In addition to geopolitics, investors will also be watching the data stream closely following last week’s FOMC meeting. As expected, the Fed elected to hold rates steady for now and reiterated the likelihood of another hike later this year. The central bank also reaffirmed its forecast for three further hikes next year. There are skeptics, however, as inflation remains stubbornly low and no major tax or fiscal spending legislation has been passed as of yet.

Gold investors are either not overly concerned about slightly higher rates, or perhaps doubt rates are going anywhere of significance any time soon. The possibility of a topping process in stocks is also likely playing a role in gold’s recent upside, and a major crash or reversal in stocks could send a significant amount of investment capital into the yellow metal and other hard assets.

A long-term bull market in gold could be getting underway just as stocks really run out of gas. Stocks have arguably become extremely overvalued, with some analysts suggesting that the bottom could be ready to fall out almost any day now. The gold market has cleared some key technical hurdles and buyers have jumped in on recent dips in price. If stocks begin to falter, or if the geopolitical landscape deteriorates further, the market could potentially make a quick run at the $1400 level. As we have discussed previously, however, slow and steady wins the race in the long run, and recent price action in gold could be considered very constructive for further gains in the coming weeks and months. 

Gold is seeing some selling pressure in early action Monday to begin the new trading week. A stronger dollar, quiet North Korea and weakening of Hurricane Irma are all likely fueling some increased appetite for risk as the new trading week gets under way.

For gold, a nice pullback with some back and fill trade may be a very good thing. Markets seldom move straight up or straight down, and when they do make such parabolic moves they rarely prove to be sustainable. Although gold may be taking a breather, the market remains firmly in “buy the dips” mode unless proven otherwise.

At this point, it seems it would take a lot to stand in the way of higher gold. A weaker dollar, geopolitics, government gridlock and a dovish Fed may all be playing a role in gold’s recent rise, and may continue to do so. Although the dollar may be seeing a bounce to start the week, the greenback remains in a firm downtrend that has the potential to see prices go lower, much lower.

The dollar would seem to be on very tedious ground here as fresh lows could trigger a much larger-scale sell-off. Looking at the bigger picture, there are not too many reasons to be bullish on the dollar right now. Yes, the Fed could potentially decide to raise rates again before the end of the year, and yes, the Fed may maintain the stance that further hikes will be coming. The pace and timing of additional hikes, however, is likely to remain extremely slow. In fact, if markets do start to get into trouble, you have to wonder if the Fed will not only avoid raising rates further but whether they could decide to start lowering rates again.

The dollar has seen quite a wild ride since Trump won the U.S. Presidency. After rallying hard, the dollar has been trending lower for some time now, moving below pre-election levels. This is likely due to not only a dovish Fed but also a lack of major legislation being passed (at least thus far). Hopes for major tax reforms and a massive fiscal spending package have dwindled, and unless significant progress is seen, the greenback could remain on the defensive.

This week, investors will get the latest inflation data in both CPI and PPI as well as retail sales and manufacturing data. While none of these reports are likely to have a significant impact on markets, slow inflation readings could potentially give the Fed more to think about regarding its rate hike plans.

The stock market will also likely be watched closely this week by investors as it is approaching its previous highs. Fresh all-time highs in stocks could potentially weigh on the gold market, while a failure near current levels in equities could also add fuel to the fire being seen in gold prices recently.

Gold is due for a pullback, and that pullback should be welcomed. Some back and fill price action will help gold make a more sustainable run higher, and any dips in the market are likely to be aggressively bought at this point. 

Traders and investors will continue to digest any key commentary from last week’s Fed symposium in Jackson Hole, Wyoming. Although much of the commentary was centered on regulatory issues, the dollar index did end Friday’s session on a weak note and could potentially be headed for further downside. This is likely due to the fact that central bankers did not do anything to clarify their intentions further, and Fed Funds contracts are still reportedly only pricing in about a 35% chance of another hike by the Fed this year.

The dollar index has seen quite a reversal in fortune in recent months. The greenback moved higher in the aftermath of the Trump Presidential victory, but has since lost considerable ground, giving back not only all of the post-election gains but moving below pre-election levels.

The weakening dollar has almost certainly had an impact on gold and other hard assets, and further weakness may stoke additional buying interest in metals. The dollar may become an increasingly important theme in financial markets in the coming weeks and months. Doubts about the Trump administration’s ability to implement its agenda have been a major factor behind recent dollar weakness, and a dovish Fed is also not doing the greenback any favors.

The ongoing lack of inflation and doubts about potential infrastructure spending and tax reforms could make the Fed very comfortable leaving well-enough alone for the time being, and rates could stay at or near current levels for a long time to come. This, in turn, could act as a major source of fundamental resistance to any significant rallies in the dollar.

The notion of a weaker dollar, ongoing low rates and the potential for a major stock market reversal are likely more than enough to keep investors buying gold. The current geopolitical landscape is another “wildcard” that may keep a floor under gold prices while also having the potential to fuel a sudden and significant rally in the yellow metal if tensions escalate further.

Speaking of escalation: North Korea launched a trio of missiles over the weekend reportedly in response to military exercises being conducted by the U.S. and South Korean armed forces. Although these missiles were short-range in nature and not the type of ICBM potentially capable of reaching the U.S. mainland, the test itself underscores the efforts being made by Kim Jong Un to advance North Korea’s military capabilities.

Although it is certainly hoped that diplomacy will prevail and provide a non-military solution to the conflict with North Korea, there have thus far not been any real signs that the North has any intentions at all of engaging in a meaningful dialog.

As the final weeks of summer begin to wind down, trading in financial markets could potentially see lower volumes with rising volatility. Equity markets are likely to take center stage, as investors try to decide if the aging bull market has run its course or if the market has more left in the tank.

In the absence of another catalyst, a clear stock market reversal or major sell-off could be the match that lights the fuse to sharply higher gold.