The gold market saw some heightened volatility last week as a number of potentially significant issues are driving investor anxiety. While gold finished the week well below the highs, the technical and fundamental backdrops remain constructive and further upside could be in store.
Last week’s FOMC meeting was the data highlight of the week, and to no one’s surprise, the Fed elected to hold off on an additional rate hike. While a June hike had been all but completely off the table, odds of a July hike are extremely low and another increase in the Fed Funds rate may not be seen this summer.
While many have been quick to blame the May non-farm payrolls report for the lack of action from the central bank, the reality seems to be that there are numerous factors working against the economy currently and that the pace and timing of any additional rate hikes could be even slower than those in the dovish camp originally thought.
Of particular note following this FOMC meeting was the absence of language suggesting another hike is imminent as well as another downgrade of the central bank’s economic outlook.
The Fed did little, if anything, to provide markets with any further clarity on the potential timing of the next hike. It seems investors will have to just wait and see.
In the meantime, investors and global markets will now likely turn their attention to another elephant in the room. The highly anticipated “Brexit” referendum will be taking place this week on June 23rd, and could have far-reaching implications for global markets.
The vote has led to increasing risk aversion and markets could get more volatile over the next few days. Investors have shifted billions of pounds out of the UK since the “Brexit” battle began and more capital is likely to be pulled this week as the vote approaches.
While it is very difficult to say just how a yes vote could impact global markets, there could potentially be a significant decline in the pound, and equity markets could possibly see selling on a large scale as the uncertainty over such a vote drives investors to the sidelines.
Gold could potentially see heavy inflows as market participants seek out alternatives, and silver as well as other precious metals may also benefit from their perceived safe haven status.
The gold market did see a large gap higher this past week but surrendered those gains throughout the session as stocks recovered. Gold remains within striking distance of those highs, however, and sitting just below the $1300 level looks poised for another run higher.
Given the current state of the global economy along with the wildcard of this historical vote, it is difficult to make a case against higher gold prices. Unfortunately for investors, current economic conditions may simply be a taste of what is to come for some time: Slow growth, negative interest rates, little inflation and more stimulus.
In our opinion, this is a great recipe for appreciation in the price of gold and silver and these metals could see steady buying interest as equity markets decline and economic reality sets in.