Gold prices may see some pressure to start out the week, as the effects of a stronger dollar continue to take a toll. Just how much the dollar has left in the tank remains unclear, as soaring deficits and geopolitical issues could weigh on the currency.
Despite the recent dollar strength, the commodity space is looking more and more bullish and could be embarking on a commodity “super cycle.”
Crude oil has been a leader in the space in recent months, and will likely dominate much of the headlines this week. Crude oil is sitting around a 3.5 year high, with Nymex crude oil trading above $70 per barrel. Brent crude is also stronger, with the bulls setting their sights on $76 per barrel. Higher crude oil prices are indicative of inflation, and could help “inflate” other commodity prices as well.
The oil market could see some volatility this week, as a deal struck with Iran in 2015 to curb its nuclear ambitions may not be renewed. If the deal is not renewed, the U.S. could reapply sanctions against Iran, dramatically cutting Iranian oil exports. This could cause a sharp price spike in the oil market that could potentially lift the price of gold and other commodities as well.
Investors will continue to monitor the data stream closely this week. The markets have seemingly priced in another three rate hikes for 2018, while the Fed has alluded to only two more rate increases. Last week’s non-farm payrolls data was solid, with the unemployment rate dipping to 3.9 percent. The data did not, however, show any wage growth as wages rose just .1% month-over-month and 2.6% year-over-year. The lack of wage growth could keep the central bank leaning to the dovish side of the ledger and could keep the Fed sticking with its original plan for three hikes in 2018.
This week, investors will get the latest readings on the Consumer Price Index as well as the Producer Price Index. These data points will likely be the highlight of the week, and could potentially put to bed the idea of a fourth hike this year. On the other hand, if the gauges come in hotter than expected, it could give the Fed reason to become more aggressive and could cement an additional hike, perhaps taking place next month.
Despite some of the recent ups and downs, it is important to remain focused on the big picture. The gold market has been building a strong base now, for the last several years. The wider the base, the higher prices may potentially go. The current backdrop of sovereign debt issues, aging stock bull markets, weaker fiat currencies and numerous geopolitical issues could set the stage for a significant and protracted run higher in gold and other commodities. It would seemingly not be a question of “if” but rather “when.”
That being said, any dips in the price of gold should be viewed as buying opportunities. The commodity bull market is just getting started, and like the recent bull market in equities, could see prices move higher for several years or more.