The gold market remains on the offensive as ongoing uncertainty surrounding the Trump administration and implementation of its policies continues to cloud investor sentiment. That being said, however, investors are still giving the new administration the benefit of the doubt.

Stocks carved out fresh all-time highs this past week as hopes for major tax reforms are riding high. President Trump has indicated that a major announcement regarding taxes would be unveiled in the near-future. This was likely the primary catalyst for stock buying this past week, and could potentially fuel a much more significant rally in equities and risk assets if Trump’s plans are met with open arms by investors.

On the other hand, if the new administration’s tax plans do not carry a certain “shock and awe” type of effect, markets could potentially be setting themselves up for disappointment.

Although the notion of significant tax reforms has investors excited-for the time being anyway- there are still numerous issues that could potentially weigh on investor sentiment and stock prices.

The ongoing debate over Trump’s immigration ban (and appeals over the plan being rejected) may continue to feed some degree of investor angst. Other issues, such as Trump’s now infamous tweeting, may also potentially have an important impact on investors and markets.

The new administration’s stance on the dollar is even the subject of debate, and that has likely been a factor in the greenback’s lack of upside follow through following its post-election highs. The dollar does appear to be poised for another try higher, however, and the dollar index is once again trading firmly above the 100 level.

After trending higher for a couple weeks, bond prices backed off a bit this past week as interest rates once again started to climb. Rates have not, however, challenged their post-election highs again.

To say that there are numerous mixed signals in the markets might now could be an understatement. At some point, something’s gotta give… The question is: what will it be and when might it happen?

Gold prices and rates rising along together could potentially signal trouble ahead for equities. Such a scenario should not be that surprising, however, as stocks have been rising for years now.

Perhaps investors are thinking about how long it has been since the last major financial crises. It has been several years since the financial crises of 2008, and the U.S. could be walking right into the arms of recession.

Given the sheer amount of uncertainty surrounding the Trump administration as well as the possibility of economic recession, gold may potentially continue its recent ascent. The Fed may elect to hold off on several additional rate hikes (some analysts have already been questioning the possibility of three hikes this year) and rates could remain very low for some time to come if recession does hit or if other geopolitical issues fuel widespread risk aversion.

The next several weeks may be very telling, and it is quite possible that gold has already put in a significant long-term bottom. 

Gold saw its first losing week of the New Year last week, as stocks saw further buying on strong appetite for risk and yields rose. Whether or not this is simply the gold market taking a breather before more upside remains to be seen.

Although much of the recent economic data has pointed to further strength in the economy, Friday’s Q4 GDP data was a disappointment. Consensus estimates were looking for fourth quarter GDP to come in at 2.2 percent. The actual reading, however, came in at only 1.9 percent. Trade deficits were cited as a significant drag for the quarter, although the report did contain some positives as well. Personal consumption expenditures, for example, rose at a 2.5 percent pace.

Some analysts believed that the Q4 GDP reading could potentially influence the Fed with regards to its rate hike plans. Although that is a possibility, the miss on GDP was likely not significant enough to deter the central bank from its rate hike plans this year. In fact, the Fed will likely want to see a lot more data before taking action.

The Fed will be meeting this week, and the markets are not expecting any surprises. Chances for a rate hike are extremely low, and even the chances for a March rate hike are very low looking at current Fed Funds futures contracts. For the time being, June appears to be the most likely date for the next hike from the central bank.

Of course, a lot can change between now and then.

The Donald Trump administration has begun following through on some of its campaign promises, and the President has been busy signing executive orders. The executive order signed on immigration is already the subject of much debate, so much so that other world leaders are voicing their opinions.

Trump has signed an executive order banning entrance to the United States from several primarily Muslim countries, and over the weekend numerous people-including legitimate green card holders-were detained at U.S. airports. Others were prevented from getting on U.S.-bound flights.

The action has sparked both praise and utter outrage, and many domestic and world leaders are voicing significant concerns not only about the ban on entrance for people from these counties but also the 120 day suspension of the U.S. refugee program.

There have been numerous protests over the weekend, and unfortunately, this subject will likely remain a fierce topic of debate for some time to come.

It is not clear how markets will react this week, although the divisive nature of the order and very different reactions from people could potentially fuel risk aversion.

The gold market will be paying attention, and investor anxiety could fuel buying in the yellow metal which is viewed as a safe haven asset. The gold market will also likely take its cues this week from interest rates, the dollar index and equity markets. Rising yields could potentially weigh on the yellow metal, although if risk aversion does start to set in, yields could see a decline along with stock prices.

Either way, given the amount of uncertainty being seen surrounding the immigration ban, gold prices are not likely to fall too far even if stocks look strong again this week. 

The gold market has been showing some signs of life in recent trade, and the possibility of a bottom being put in appears to be on the rise. That being said, however, the gold market remains vulnerable to additional selling pressure. Further dollar strength, rising rates and robust appetite for risk may all potentially weigh on the yellow metal for the foreseeable future.

The countdown is on, and President-elect Donald Trump will be taking office in less than two weeks. Markets have shown a significant reaction to the Trump victory, but the real test will be seen in the coming weeks and months.

Equity markets have risen sharply on the notion of lower taxes and significant fiscal spending. Interest rates and the dollar have also been on the rise, as Trump’s policies are seen as being inflationary.

What remains unclear, however, is exactly what the incoming Trump administration will and will not be able to accomplish. Even in the most recent FOMC meeting minutes released last week, the Federal Reserve seemed more hawkish yet also made it pretty clear that there are a lot of unknowns that could potentially affect monetary policy. They did not, however, mention Trump by name.

Investors will want to see rapid progress being made on Trump’s policies, and any signs of congressional gridlock or a smaller fiscal spending package than is currently expected by markets could potentially halt the current rally in its tracks.

Even with a large boost in fiscal spending, some analysts are questioning just how much of an effect it may have on overall economic output. In the Fed’s most recent projections, the central bank is now forecasting GDP growth of 2.1 percent versus its September forecast of 2 percent.

Although the central bank said that those projections are subject to change, for now it appears that the central bank is more concerned with upside risks. Some analysts felt the Fed minutes were the most hawkish in years, but it is important to keep in mind that with many potentially significant changes on the horizon the path of monetary policy could be a rocky one. After all, it was not long ago that four rate hikes were expected in 2016, yet the central bank only saw fit to raise rates once.

The gold market could potentially be in the midst of a long-term bottoming process, and it’s possible that a bottom has already been reached.

With the new incoming administration comes potential changes in both economic and geopolitical policy, and gold could possibly provide investors with a degree of comfort. There are a number of issues that have the potential to rattle markets and drive a flight to safety including a possible trade war, negotiations with Mexico over a border wall and U.S./Russian relations.

Although risk assets may remain in favor for the time being, investors will be watching both the data stream and any changes in policy closely. With the current bull market in stocks already very aged, there exists the possibility of a significant asset reallocation that could potentially send gold on its way higher in a multi-year bull market. 

Fortunately for the gold market, the year will soon be coming to a close. For many weary gold bulls, the closing of the books on 2016 cannot come soon enough. Despite the selling seen in the yellow metal over the last several weeks, however, it should be noted that gold is still up on the year.

Better days could potentially lie ahead for gold, and the start of the New Year could bring with it some very interesting changes and market action. Although all may seem well today, the global economy has numerous issues that could potentially put a halt to the current rally in risk assets and put a bid back into gold and other perceived safe haven assets.

For starters, the current rally in stocks and the dollar is built upon nothing more than hot air. Plans for tax cuts, increased fiscal spending and job creation all sound fine and great, but thus far that’s all it is-talk.

Although stocks could see an ongoing boost if such measures were in fact implemented, there are two key considerations:

1. It remains unclear if tax cuts, a massive infrastructure spending program and other potential economic policies will pass muster with Congress.
2. According to some analysts, the effects of such measures may not provide any long-term sustainable boost to growth.

In other words, the markets could be setting themselves up for disappointment. The current rally may march on into the first several weeks or months into Trump’s first term, but investors will soon begin to get a clearer picture on what may or may not be expected from a policy standpoint.

Like an overinflated balloon, if investors begin to get the sense that changes in policy are lacking in the “shock and awe” department, much of the hot air from the rally may be released, deflating stock prices along with it.

An equity market that begins to show signs of cracking could potentially be very bullish for gold, and the yellow metal could potentially benefit from a significant asset rotation sometime in the New Year.

We also feel that China could be a very large wildcard in more ways than one, and that the world’s second largest economy could potentially have a big impact on gold prices in the year to come.

It is no secret that China is going to have to deal with its own debt issues at some point, and that the Chinese economy may not be as strong as believed. Worries over China put stock investors on the defensive to start 2016, and some equity markets got off to their worst start to the year on record. Although stocks may head into the New Year with a full head of steam, worries over China can resurface quickly and have the power to put a significant dent into global appetite for risk.

As if this was not enough, markets will now also likely pay close attention to Trump’s dealings with China. Trump has made it clear that he intends on taking a hard line with China, and relations between the two counties could potentially see some changes this year. A trade war or other issues could potentially ignite a flight to safety that could possibly benefit gold and other perceived safe haven assets.

Gold may see a renewed interest in the coming weeks. For the time being, the market may remain on the defensive, and prices could head even lower than the recent lows. Once much of the current euphoria begins to subside, however, and the dust begins to settle, gold may once again shine as investors look to diversify away from risk assets.

At current price levels or even lower, we believe that gold represents an excellent value for the long-term investor and that gold will once again see higher prices in the year ahead while potentially providing a meaningful hedge against many of the potential economic and geopolitical issues that could surface.