The gold market has been on its heels in recent trade, and the yellow metal could potentially see another dip towards the $1200 per ounce level. Numerous issues have weighed on the gold market in recent weeks, and the notion of higher interest rates and a stronger economy appears to be taking its toll.
Gold had been moving higher as safe haven inflows saw the metal approach the $1300 area, only to back off quickly. The threat of a further escalation with North Korea and the possibility of military action kept buyers active, but for now the situation has quieted down a bit and the gold bulls are left looking for reasons to buy at current levels.
Key outside markets are also not doing gold any favors. The stock market has rebounded from a short bout of selling and is currently poised to challenge its recent highs. The market certainly appears ready to initiate another leg higher, and at this point it could take a significant event to undo stock investors’ optimism.
At the same time, bonds and notes have been on the decline as the Fed shows it’s ready to stick with its plan of two more rate hikes this year. Last Friday’s jobs data likely sealed the deal for another rate hike in June, as the U.S. added 211,000 jobs last month-well above consensus estimates of 185,000 jobs added. This report likely put to rest any concern after March’s disappointing labor market report.
The crude oil market is also adding to gold’s woes, as prices continue to decline and are now trading at the lowest levels in a year.
The combination of outside market activity, economic optimism and a lack of any fresh bullish catalyst could keep any upside in gold limited.
Over the weekend, the second round of the French presidential election was held, and favorite Emmanuel Macron became the next French President. This victory will likely cause a significant sigh of relief for the EU as well as the ECB and Swiss National Bank. A Marine LePen victory could have sent shockwaves through global financial markets, and could have even signaled the beginning of the end for the EU as at exists today.
With the French election over and done with, investors will get back to business as usual and the focus this week will again be on the economic data stream as well as any new legislative developments from the Trump administration.
For now, the path of least resistance in stocks and risk assets remains higher, and further upside in these assets may coincide with additional downside in gold. That being said, however, you have to question just how much stocks may have left in the tank without any new significant legislation being passed by the Trump administration.
The more time that passes without a tax reform deal being passed as well as a significant fiscal spending package being introduced, the more likely that a major reversal in stocks may be seen in the coming months. This, along with the current geopolitical environment, may keep the yellow metal from falling much further, and the market could see some very solid buying interest around the $1200 level.