The gold market is moving slightly higher in early action on Monday to kick off what could be an extremely busy trading week. A heavy slate of economic data set for release, potential developments out of China and the Federal Reserve meeting set for Tuesday and Wednesday this week will likely dominate the headlines.
The Fed is holding its regularly scheduled meeting on rates this week and markets are expecting the central bank to hike rates by another 25 basis points. This rate hike has already been “baked into the cake” and markets will be far more interested in any clues the central bank may provide regarding its plans for monetary policy going forward. Just a few weeks ago, traders were pricing in another three rate hikes for 2019. Those expectations have been tempered lower, however, following some recent dovish commentary from Fed chief Jerome Powell. The notion of higher rates has given stock investors reason to sell and has been a major force behind recent market volatility.
The Chinese economy has also been a major source of concern for investors as recent economic data continues to point to a significant slowdown. China reportedly made a cash injection into its financial system today and additional economic initiatives could be announced by Chinese officials this week. As the world’s second largest economy, any measures taken to support the Chinese economy could potentially give both stocks and commodities a major boost.
A ton of U.S. economic data will be released this week including first estimates of Q3 GDP. The data did not get off on a strong foot today, however, as Empire State manufacturing data dipped to its lowest reading in 19 months. The gauge is the first of several regional Fed indexes that will be reported this week and further weakness in other areas could give the Fed further reason to pause. The central bank has already been under increasing pressure to halt its current path towards policy normalization and while a single rate hike for 2019 is still on the table, further domestic weakness could very well keep the Fed at bay for the year.
As the trading year winds down over the next two weeks, investors may begin to position their portfolios for the New Year. Significant asset rotation along with dwindling trading volumes can make for some volatile trade across asset classes in the sessions ahead. Global markets remain highly vulnerable to significant headline risk as well and any number of issues could potentially fuel a sharp rise in volatility.
The stock market has been unable to hold some significant rallies in recent weeks and has exhibited a technical breakdown. With deteriorating internals and arguably market fundamentals, stocks could continue to trend lower and forge deep into bear market territory. Further stock weakness could be a major catalyst for higher gold and these markets could show an increasingly negative correlation.
The gold market remains slightly below key resistance at the October highs around $1252. Thus far, buyers have stepped in to buy the dip and the market is likely to attempt a significant upside breakout in the sessions ahead.