The gold market is slightly higher in early action Monday as stocks and investor risk appetite take a break from recent upside. As of this post, the gold market is up about $.80 per ounce at $1460.50 per ounce. The market had traded over $1464 earlier in the session but has come off its recent highs.
There are several factors this week that could influence the gold and stock markets. Two of the biggest potential issues could be the proposed tariffs going into effect against China on the 15th, as well as the UK election being held on the 12th. Of course, investors will also be paying close attention to any key pieces of economic data as well as the ongoing trade negotiations between the U.S. and China.
The continuing Brexit saga has put markets back on edge in recent weeks as the deadline again approaches. Although Boris Johnson and the Conservatives have a double-digit poll lead heading into Thursday’s vote, the gap has been tightening in recent weeks and anything could happen. Even with a victory, Johnson and the political party may not be able to pull off a Brexit deal as suggested. Lack of a deal, or a no-deal Brexit, could potentially lead to heightened market volatility and uncertainty in the weeks and months ahead.
Although recent discussions appear to be productive, the U.S./China trade war continues, with further tariffs set to go into effect on December 15th. If these duties are implemented, it could potentially undo much, if not all, of the progress that has been made in recent talks. On Friday, China waived tariffs on U.S. soybeans and pork as a show of good faith in recent discussions. China may be hoping that the U.S. will follow suit, yet President Trump appears to have no plans of letting China off the hook. China has asked the U.S. to roll back tariffs as part of a “phase 1” agreement, but the U.S., thus far, appears unwilling to do so.
If further progress between the globe’s largest economies is not seen in the weeks ahead, investors could become uneasy and selling in risk assets could intensify. Such a scenario could produce a lose-lose situation for the Trump administration, which needs to make a solid, pro-U.S. deal with China on trade but may also need stronger stock markets as the 2020 reelection campaign gets into full swing.
The gold market has thus far held above the $1450 level and may continue to do so. Although a more serious dip cannot be ruled out, the market may simply be waiting for a fresh, bullish catalyst to take prices back towards the $1500 region or beyond.
It may be unlikely that the yellow metal falls much further than recent lows, however, as numerous long-term issues may remain supportive in the years and even decades ahead. These issues include rising sovereign debt levels, central bank monetary easing, weaker fiat currencies and an aging equity bull market that is likely to run out of gas at some point.