Gold is often bought during times of uncertainty, and right now it would seem that investors are feeling more and more uncertain about numerous issues.

 

Tension levels between the U.S. and North Korea have reached new heights. In an almost tit for tat exchange, leaders from both nations have traded threats. The risks of a nuclear confrontation appear to be at the highest levels since the Cold War, and both militaries are on alert.

 

It remains unclear if North Korea actually has the capability to deliver a nuclear warhead to North America, but recent assessments by U.S. intelligence agencies would seemingly indicate that North Korea has-or is very close to having-such capability.

 

Guam has been at the center of attention in recent days as North Korea has threatened to strike the island. Guam is of strategic importance to the U.S. as it is home to thousands of American soldiers as well as an Air Force bomber group.

 

President Donald Trump has vowed to hit North Korea if it attacks Guam or other U.S. interests, and although a first strike by the United States seems very unlikely, it cannot be ruled out. The situation has, however, gotten a bit stickier as China voiced its position. The country has said that it will remain neutral if the U.S. is attacked by North Korea, but will protect North Korea if the U.S. attacks or attempts to remove the current regime.

 

The threat of war with North Korea is more than enough to keep investors on their toes. Add to this threat the ongoing investigation of possible collusion with Russia by the Trump campaign and the possibility of U.S. military action in Venezuela and you have a recipe for significant risk aversion.

 

The flight to safety has not been seen in force yet, but unless things cool down dramatically it could simply be a matter of time before investors shun risk assets en masse. Stock investors have remained surprisingly resilient in recent weeks, but that resilience is likely approaching its limits.

 

Gold has been trending higher for several weeks now, and is close to breaking out above its most recent highs. An upside breakout in the yellow metal could draw further buying interest, and the market could really be off to the races if the current geopolitical landscape does not change quickly.

 

The U.S. is still also facing numerous domestic issues that could potentially keep gold and other perceived safe haven assets moving higher. Violence in Virginia over the weekend at a protest is another sign of the divisions being faced within the country. The lack of major tax or fiscal spending legislation may also eat away at investors’ appetite for risk.

 

The ongoing lack of inflationary pressures may also keep the Federal Reserve from becoming more aggressive in monetary policy, and the bull market in stocks may be reaching its crescendo after almost a decade of gains.

 

Any way you slice it, it appears that the gold market is beginning what could prove to be a multi-year protracted bull market as stocks may be in the process of making a long-term top. Heightened geopolitical tensions may accelerate a significant move higher in gold, with the possibility of a substantial spike higher in price should military conflict become unavoidable.

 

Hopefully, diplomacy will be the primary tool used to reach a peaceful resolution. 

The gold market is quiet in early action Monday to begin the new trading week, but the yellow metal is not likely to fall far any time soon as several issues keep the safe haven bid alive and well.

 

On Friday, North Korea once again tested an ICBM that apparently has the potential to strike the U.S. mainland. This is being seen as yet another act of defiance by the North Korean regime, and the time for action could be approaching.

 

President Trump recently expressed frustration with China for not doing more to control North Korea. It was hoped that China may be able to exert heavy influence over the North due to its status as the North’s largest trading partner. Thus far, however, any Chinese influence over North Korean leadership does not appear to be enough to force the regime to rethink its nuclear ambitions.

 

Japan has become more vocal in recent weeks voicing its concerns over North Korea’s missile capabilities, and the U.S., Japan and South Korea have been actively conducting exercises to counter the threat.

 

Although military action may be a ways off, diplomatic efforts have thus far not been productive. The U.S. and some key allies may now look to be more aggressive with North Korea and attempt to ramp up the economic pressure on the isolated nation. This could be done through various means including stiff fines and penalties for banks and others that do business with the nation. It has been suggested that much of the country’s nuclear program has been financed through various off-the-books business dealings such as arms sales and forced labor. Whatever the case may be, this situation could affect global markets with any further escalation, and hopefully a peaceful resolution will be found.

 

In the meantime, however, gold and other hard assets may remain well-bid as anxious investors seek their perceived safety.

 

Also on the geopolitical front, Russia has said it will look to expel 750 diplomats in retaliation for U.S. sanctions. This is yet another sign of strained relations between the U.S. and Russia.

 

A major test may be approaching for gold. The market has been trending higher and is nearing its recent highs. If the yellow metal is able to break out above those previous highs, others may want to climb on the bandwagon and the metal could be off to the races.

 

In addition to the numerous geopolitical issues currently being faced by global markets, the gold market may also benefit from a more dovish-sounding Fed and weaker dollar index. It appears that another rate hike will likely not be seen until the end of the year, and some are questioning just how aggressive the central bank may be when it comes to any further tightening of monetary policy.

 

The dollar index has been moving lower on a lack of inflation, dovish central bank rhetoric and lack of major tax reform or fiscal spending legislation being passed. These factors could fuel further upside in the gold market, and the metal could be on the verge of a protracted bull market as the stock bull market may be drawing to a close. 

Gold ended the prior trading week on a high note, rising by over $10 per ounce as silver also gained ground. The yellow metal may need to get the new trading week off to a strong start in order to keep any bullish momentum going.

 

The gold market could potentially see an about-face as interest rate expectations change. Although the Fed recently raised rates again, there is a degree of ongoing debate as to the central bank’s plans going forward. The Fed recently reiterated its plans for another hike this year, but that hike may now not be seen until December-if it is seen at all.

 

There is no question that numerous key economic indicators have shown dramatic improvement in the last several months, there are, however, remaining concerns about the overall strength of the recovery.

 

GDP figures have not been much to write about, and the continuing lack of inflationary pressures has to be a source of concern. Recent inflation data showed price pressures rising at a 1.7% annualized rate, well below the Fed’s 2% target. While the Fed has alluded to the lack of inflation being “transitory,” the fact that prices are not rising despite ultra-low rates and increasing employment is a story that may continue to unfold.

 

The upcoming trading week is relatively light in terms of data release, but leading indicators and housing data could provide investors with more clues about economic activity.

 

A seemingly more dovish Fed could green light further buying in already overstretched equity markets, while at the same time also providing precious metals investors reason to buy. The current scenario of low rates, higher stocks and sideways to lower gold is not likely to continue much longer, and markets could be on the verge of some significant movement.

 

The equities markets could be setting up for a major fall, and the next major downdraft could potentially be nastier than 2008/2009-wiping out billions of dollars of investor value in the process. In fact, the Fed could even be forced to begin lowering rates once again if the stock market gets hit hard or if economic activity contracts. Any way you slice it, it would appear that the era of loose monetary policy is far from over.

 

The notion of relatively low rates for the next several years could be constructive for gold. With the possibility of recession on the rise, along with a major reversal in stocks, now may be the ideal time to consider an allocation in gold and other alternative asset classes.

 

 

The masses remain highly optimistic about the economy and the stock market. The gold and bond markets, however, seem to be telling a different story. Despite gold’s recent declines, the yellow metal has not fallen far from its recent trading range, just as rates have not been able to mount a significant ascent. This could potentially be a warning signal.

 

Gold could see further declines, although any activity at or around the $1200 per ounce level is likely to be met with heavy buying interest. Gold may simply be biding its time, until the next major bullish catalyst fuels what could be a protracted upside breakout.

 

Don’t be surprised at all if such a bullish catalyst comes in the form of a major stock market collapse. 

Markets are likely to pick up this week where they left off last, and light holiday trading volumes could potentially exaggerate buying or selling pressure. U.S. markets will be closed on Tuesday in observance of the Fourth of July Holiday, and many traders and investors may be vacationing this week.

 

The gold market has been seeing some steady selling pressure in recent trade, and that pressure looks set to continue this week. As long as stocks remain on the offensive, the yellow metal may have a difficult time making any significant upside headway.

 

Although the path of least resistance remains higher in equities, the stock market has been showing some signs of weakness. This is significant, as a reversal in stocks could potentially be the next major bullish catalyst for gold.

 

Ongoing weakness in crude oil is likely to take a toll on stocks, as the energy sector is often the leader. A move back down to the $40 per barrel level or beyond could have a significant impact on global equities, while also having the potential to move currency markets.

 

Speaking of currency markets, the dollar index has also been in a downward spiral and remains in a firm downtrend. Further weakness in the greenback could also be bullish for gold and other dollar-denominated asset classes. If recent dollar declines can be attributed to a lack of policy progress by the Trump administration, the currency could continue to see pressure as any passage of key pieces of legislation such as health care and fiscal spending could be further down the road than originally anticipated.

 

Outside of the geopolitical sphere, investors will remain focused on the economy and the Fed. Although the central bank recently raised interest rates again, more and more analysts appear to be questioning the Fed’s plans going forward. The central bank stuck to its guns regarding plans for another rate hike this year, although there are numerous potential issues that could cause the Fed to stand pat.

 

With the odds of a stock market reversal seemingly increasing by the day, and the possibility of the next recession also on the rise, the Fed may remain very accommodative for the foreseeable future. Not only may the Fed remain supportive, but the notion of the central bank taking rates back down to zero is certainly plausible if markets take a major turn for the worse.

The gold market has some issues working it against it currently, but it also has numerous issues that could fuel inflows into it. Recent range-bound price action in gold could be indicative of a market that is readying for a major breakout, and the longer the market goes sideways the more significant any breakout could be.

 

Given a relatively weak economic backdrop, a dovish Fed and the many geopolitical issues currently being seen around the globe, our money would be on an upside breakout in the months and quarters ahead. In fact, gold could be getting ready to embark on a multi-year bull run as stocks may be approaching the beginning of a protracted bear market. 

Last week, the U.S. Federal Reserve raised interest rates by 25 basis points in a move that was not unexpected. The central bank also reiterated its plans for one more hike this year as well. December would seem to be the likely target, although another move in September is certainly a possibility.

 

Looking forward, the subject of inflation will certainly play a role in any decisions made by the Fed regarding monetary policy. Although the central bank has maintained its slightly hawkish stance, that hawkishness could give way to further dovishness as inflation remains extremely elusive.

 

Take a look at last week’s latest reading on consumer prices to see just how difficult it has been to spur rising inflation. It was reported last Wednesday that the Consumer Price Index saw a rise of -.1% month-over-month while the core inflation reading year-over-year showed a rise of 1.7%. These figures are still below the Fed’s desired target of 2% annual inflation and could be characterized as “soft.”

 

Specific fundamental cost areas were weak, with education, communication, health care and energy all posting declines.

 

You have to wonder just how aggressive the Fed could possibly be given these weak inflation figures. In fact, the ongoing lack of inflation could even begin to raise questions about another hike being seen in 2017.

 

Some could even potentially argue that the Fed is simply raising rates only to have the ability to lower them again at a later date.

 

Yes-stocks are moving higher. Yes-the economy has shown some signs of improvement. Yes-there could potentially be legislation passed by the Trump administration that could boost economic growth.

 

But…The stock market could be considered ‘extremely .long in the tooth” at current levels. No major legislation has been passed thus far. The risk of recessions seems to be on the rise. Add to these issues the numerous geopolitical factors currently being faced around the world and the possibility for a nasty stock market correction along with a major economic slowdown exists.

 

It would seem to be a question not of “if” but of “when.”

 

The gold market has shown some impressive resilience in the face of a stronger dollar, higher rates and higher equities. The yellow metal could potentially see significant inflows once the bull market in stocks reverses course.

 

That is likely a primary reason gold has remained in “buy the dips” mode for some time now. The market may, however, be knocking on the door of a major upside breakout that could potentially see prices sharply higher in the months and years ahead.

 

Taking a long, objective look at the economy and global backdrop, it is difficult to imagine a scenario in which rates see any dramatic moves higher in the coming months and even years.

 

In fact, the global economic landscape may remain on the soft side for a long time to come. As central banks scramble to fight deflationary pressures, they will likely be forced to use the tools available to them to fight the slowdown i.e. lowering interest rates and balance sheet expansion.

 

Such an environment could be conducive to drastically higher gold prices, weakening currency values and lower stock markets around the world.