The gold market may simply be in a period of treading water until the next Fed meeting later this month. The market has shown a tendency to remain subdued or even lower ahead of such announcements on monetary policy, and then rallying once the decision on rates has been made public.

 

The markets are pricing in a June rate hike from the central bank, with the next hike likely not coming until October or November. The Fed has also alluded to the fact that it may already be close to a rate level that is neither overly expansionary nor overly aggressive. Although the current rate cycle is not likely to see rates get anywhere near levels seen in previous tightening cycles, rates could potentially end up staying at levels that are even lower than expected. In other words, it appears that the era of low rates may not be over, but may be likely to continue for some time. Such a scenario could potentially be highly bullish for gold and other hard assets.

 

Investors continue to cheer on last week’s non-farm payrolls data which showed the U.S. added a solid 223,000 jobs in May. Current enthusiasm may be tempered quickly, however, if geopolitical tensions deteriorate further.

 

Risk appetite remains strong currently in spite of several negative influences. Stock investors have thus far been able to shrug off recent developments in Italy as well as new developments in global trade. Both could be a serious cause for concern and could potentially rattle global financial markets.

 

Italy was unable to form a new government, and will now hold elections later in the year. The nation’s anti-establishment parties seem to be gaining further traction, and if elected could push for the nation to withdraw from the EU. Needless to say, as one of the region’s largest economies-and the largest debtor nation-an Italian exit from the union could have widespread and significant implications for global financial markets. Investors are likely to keep this in mind over the next few months, as a flare-up in tensions could send capital pouring into perceived safe haven assets.

 

Recent tariffs imposed by U.S. President Donald Trump are also making waves. The U.S. last week announced it would impose a stiff 25% tariff on imported steel from Canada, Mexico and the EU. It would also impose a 10% tariff on imported aluminum.

 

The administration used a little-known law that permits the use of tariffs to counter a national security threat. Canadian Prime Minister Justin Trudeau called the move “insulting and unacceptable.” Canada has responded by imposing tariffs of its own on a variety of goods, and the confrontation could hurt consumers on both sides of the border.

 

The move also drew criticism from French President Emmanuel Macron, who reportedly stated “economic nationalism leads to war.”

 

Any further escalation in the war on trade could send shockwaves through global markets. With the U.S. apparently ready to take a hardline approach, investors may become increasingly cautious and demand for perceived safe havens asset classes may see some sharp gains in the weeks and months ahead.

 

Investors continue to cheer on last week’s non-farm payrolls data which showed the U.S. added a solid 223,000 jobs in May. Current enthusiasm may be tempered quickly, however, if geopolitical tensions deteriorate further.