The gold market is seeing some moderate selling pressure to kick off the new trading week. Strong appetite for risk continues to stand in the way of higher gold prices, and stocks appear set to venture further into new all-time high territory. The question is: will it last?
Geopolitical factors that have driven buying in gold in recent months have waned a bit, and even another missile fired over Japan recently by North Korea did not fuel any significant flight to safety by investors. Perhaps saber-rattling by the North has simply gotten old at this point, but risk assets may potentially continue higher unless there is some type of further escalation in the conflict.
With risk appetite remaining robust-for now at least- gold could potentially see some profit taking and selling pressure in the coming days and weeks. In fact, some back and fill trade could be healthy for the market if it is to make a sustainable run higher.
Investors will have other figures to chew on this week, as there is some key economic data set for release and as the U.S. Federal Reserve meets to discuss monetary policy. Investors will get the latest readings on Housing Starts, Weekly Jobless Claims, PMI Composite Flash and more. Although any of the key data points set for release this week can potentially be market-moving, investors will likely focus their attention on Wednesday’s FOMC meeting announcement.
No interest rate hike is expected from the central bank at this meeting’s conclusion, however, the Fed could give clues as to its plans for further rate hikes later this year. Following the FOMC announcement, the Fed will also release its most recent forecasts. This will then be followed by a Fed Chair press conference at which Fed Chairwoman Janet Yellen will answer questions and provide more detail about the central bank’s forecasts.
Although another rate hike in 2017 seems like a good possibility, some issues in recent months could potentially keep the central bank on hold. An ongoing lack of inflationary pressures could be one obstacle, geopolitics could be another. A lack of major tax or fiscal spending legislation in the U.S. could be yet another hurdle to higher rates.
Whatever the case may be, investors will want to see if the Fed maintains a fairly dovish attitude or if the central bank appears to be leaning towards a more hawkish stance regarding monetary policy. A Dovish-sounding Fed could keep stocks and gold moving higher, while a hawkish Fed could potentially weigh on both asset classes. Any positive correlation between gold and equities, however, is not likely to last too long. At some point, if stocks begin to come under significant pressure or if another crash takes place, a great deal of investment capital could potentially find its way into gold. Even with the notion of rising rates, the path of further hikes by the Fed is likely to be very slow and very gradual and will likely not deter investors from putting capital to work in gold should stocks enter a bear market.