Outside Markets Pressure
The gold market is slightly lower in early Monday action as key outside markets pressure the yellow metal. In early action, the dollar is higher while crude oil prices are lower. Stocks are also moving lower, with the benchmark Dow Jones Industrial Average down over 150 points in early action.
A major theme this week and for the coming weeks will likely be the reopening of economies, Different states in the U.S. are now attempting to reopen for business, and other areas of the world are also looking to get their economies rolling again. The reopening of areas presents several significant challenges, however, and will likely be performed at a very slow, controlled pace. A resurgence of COVID-19 infections is a major risk being faced, and should the virus start to accelerate its spread, many economies could find themselves quickly shut down again, perhaps for an even longer period.
U.S./Chinese relations remain strained currently. The two sides have exchanged shots about China’s handling of the virus as well as the origin of the virus. President Trump reportedly has suggested that COVID-19 may have been manufactured in a laboratory. Whatever the case may be, the initial handling of the virus and China’s communications surrounding it remain a sore spot between the nations and could even throw a major monkey wrench into previous trade negotiations.
As the U.S. and other nations battle against COVID-19, the notion of negative interest rates has gained steam. Although the U.S. is not negative, at least not yet, Fed Funds have at times implied negative territory in recent weeks. The argument for or against going negative is likely to continue, and Fed Chief Jerome Powell may set the record straight this Wednesday during a discussion on current economic issues online. The idea of rates moving into negative territory is likely to remain an important topic in the weeks and months ahead.
The gold market remains in a strong uptrend, and although prices have dipped below the $1700 level in early action today, the bulls may be willing buyers on any significant weakness. The yellow metal seems to have all the right things going for it currently, including a high degree of risk aversion, massive government debt, low interest rates and weaker currencies.
Although the market is taking a bit of a breather in early action today to start the trading week, the bulls will likely keep their focus on the $1800 level as the next potential target. A breakout above this level, on a closing basis, could set the stage for a return to previous all-time highs near $2000 or beyond. With little upside chart resistance ahead, the bulls could even see a rapid run higher into fresh all-time highs where the market could potentially even cover several hundred dollars of upside in a short period of time.
The recent forecast by Bank of America for gold to hit $3000 per ounce is not only looking increasingly plausible but also more likely.