The gold market is seeing some buying activity to kick off the new trading week, as a degree of risk aversion appears to be creeping into the marketplace. Over the weekend, numerous geopolitical developments took place that could potentially drive investors into more of a “risk-off” mindset.
Unfortunately, another terrorist attack has taken place in London. The attack left several dead and many injured, and ISIS has reportedly claimed responsibility. Also over the weekend, Saudi Arabia, Egypt and some other Middle East nations have reportedly cut ties with Qatar, accusing the nation of taking actions that are destabilizing for the region.
Both of these developments may be on investors’ minds, however, they have thus far not had a significant impact on global markets. Sadly, such terrorist attacks have become so common that they do not have a major impact on financial markets anymore.
This week is on the lighter side of the ledger in terms of economic data, but that doesn’t mean that there won’t be plenty of things for investors to chew on. Thursday will be the main news day of the week, with U.K. general elections getting under way, the ECB holding its monetary policy meeting and former FBI Director James Comey testifying before the Senate Intelligence Committee.
Comey’s testimony could potentially stir markets-and risk appetite-if it bolsters the idea that President Trump sought to obstruct the FBI investigation into alleged Russian ties with the Trump campaign.
Virginia Senator Mark Warner was quoted in a recent article from CNN.com as saying “Clearly, it would be very, very troubling if the President of the United States is interfering in investigations that affect potentially the president and his closest associates.”
The testimony represents a great risk for the administration after numerous denials of any wrongdoing or attempts to influence the FBI investigation. If Comey testifies that he is convinced the President was in fact trying to influence the investigation, it will likely raise even more questions as Congress attempts to determine if justice has been obstructed.
Needless to say, such a scenario could have a major impact on the U.S. Government and financial markets, and could fuel a major stock market sell-off while giving investors reason to move to perceived safe haven assets.
Outside of the geopolitical sphere, the Federal Reserve will also be meeting later this month to conduct its meeting on monetary policy. It is widely expected that the central bank will lift rates once again by 25 basis points. In fact, Fed Funds futures contracts are pricing in over a 95% chance of another hike this month.
The question will become, however, whether or not the central bank decides to take a softer, more dovish tone going forward following some disappointing economic data. More dovish rhetoric from the Fed could give gold and metals a boost, while a more hawkish tone could potentially weigh on the complex. In addition, recent dollar index weakness could be exacerbated if the Fed signals a slowing pace, and any further declines in the greenback will likely be very supportive for gold and other dollar-denominated assets.