Gold ended the week on a high note, showing further signs of underlying strength. From a technical standpoint, the gold bulls appear ready to challenge the recent highs, and a test of the $1400 level may be in store. The fact that gold continues to climb along with stocks is certainly noteworthy, and at some point this positive correlation is likely to diverge.

Gold may see follow through buying this week as uncertainty over the pace and timing of any additional rate hikes by the Fed becomes an area of investor focus. While the FOMC appeared to be significantly more upbeat about the economy, other data painted a different picture. This will only fuel further speculation on whether or not the Fed looks to tighten again anytime soon.

On Friday, Q2 GDP data released missed expectations by a large margin, registering a reading of only 1.2 percent. Consensus estimates were looking for a reading of 2.6 percent. In fact, in recent weeks, hopes were for a number approaching the three percent mark. Those hopes faded rapidly, however, as some key pieces of economic data such as Durable Goods Orders failed to meet expectations recently.

Despite the lousy headline number, there were some positives in the report. Consumer spending rose by 4.2 percent, while net exports rose by 1.4 percent.

This data will certainly give the Fed more to consider when it meets again. While Fed Fund futures are pricing in a moderate chance of  a September interest rate hike, the Fed could potentially elect to hold off until December or even next year.

In addition, while post-Brexit volatility and selling in stocks has abated-for now anyway-it remains unclear as to just how the historic vote might affect financial markets. This issue could still present a significant headwind for global markets and will likely be monitored closely by policy makers.

The dollar was beaten up badly on Friday following the GDP data, declining 1.27 percent during the session. The greenback has essentially fallen back near its previous trading range, and additional weakness could be seen if economic data disappoints and the Fed is given more reasons to keep rates steady at current levels.

The highly anticipated Bank of Japan meeting was a disappointment for investors, as the BOJ did not cut rates further into negative territory or institute more significant measures.  While some adjustments were made, policy makers did leave the door open for further easing in the future. Japanese stocks sold off on the news but later recovered. This may simply be another sign of just how dependent equity markets have become on quantitative easing.

Gold has held up very well considering recent strength seen in equities. Despite that strength, however, interest rates remain not far from all-time lows. At some point, this divergence is likely to come to a head, and stocks could potentially see a significant sell-off from current levels. This could potentially drive additional capital into gold and other perceived safe haven assets. For now, however, it appears that the path of least resistance in stocks remains higher, as yield hungry investors have few, if any, alternatives.

While we expect gold to remain on the offensive despite higher stocks, any signs of significant weakness in equities could potentially fuel a much sharper rally in gold as more investors look to jump on the bandwagon. 

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 23^rd 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 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 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 23^rd, 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.