The gold market is starting the week off on a bit of a weaker note as improving investor sentiment has boosted overall risk appetite. Overnight, Chinese stocks were flying high and the Chinese market ended the session higher by some four percent. Chinese officials have said that they are prepared to boost the economy, possibly by cutting personal taxes. European stock market followed suit and also traded higher despite ongoing concerns over the health of the Italian economy and budget.
Investors will be paying close attention to a number of key economic reports and events this week. On Thursday, the European Central Bank will be meeting to discuss monetary policy. Although no action is expected on Thursday from the central bank, the press conference immediately following will likely garner some close scrutiny. ECB President Mario Draghi could potentially provide some insights as to how the central banks plans on proceeding with monetary policy. The ECB Chief could also even shed some light on his thoughts regarding Italy. The ongoing economic struggle in Italy has been the subject of much speculation, with some even suggesting that the nation could eventually leave the European Union or cause far more widespread financial problems in the region if it cannot come up with a workable budget or goes into default.
The ongoing U.S./China trade war also remains a source of tension this week. Presidential Economic Advisor Larry Kudlow recently suggested that China is refusing to engage on trade, and that the country is not showing any signs of willingness to meet U.S. demands that could offer a breakthrough in trade negotiations. The U.S. has already slapped tariffs on nearly half of Chinese imports, and further tariffs would almost certainly cause rising prices and an economic slowdown. While this issue may have been “swept under the rug” once again, it is a potential powder keg that could have a significant impact on risk assets and the global economy.
In other news that could potentially have an impact on markets, U.S. President Trump has suggested that the country would withdraw from a key Cold War-era treaty that eliminated nuclear missiles from Europe. The U.S. has suggested that Russia has been in violation of the pact, and Russia has already said that it would retaliate if the U.S. does withdraw. Although this story has not garnered much attention, at least not yet, it is a major development that could potentially reignite an arms race.
The U.S. will release its first estimate of Q3 GDP on Friday. Estimates are for a reading of 3.4%. A solid GDP figure could potentially give stocks and the dollar a boost, although it remains far from clear if recent economic strength will be sustainable. Numerous analysts have suggested that the current tailwinds provided by tax cuts and government spending are playing a big role in the economy, and that role is likely to falter as their effects wear off. In addition, investors will have to question what effect the ongoing rise in interest rates may have on the economy. Stock investors have already voiced some big concerns as was evident in recent stock sell-offs.
Whether a downturn comes sooner or later, at some point the economy will once again slow and stocks could see an end to the decade-long bull market. Looking at recent price action in the gold market, it appears that some investors are trying to stay ahead of the curve and are putting capital to work in alternative asset classes. This trend will likely continue given the current economic and geopolitical backdrop.