With solid weakness in Friday’s session to finish the week on a sour note, gold could see additional selling pressure before finding more solid footing. The yellow metal declined over $100 per ounce from the highs seen Tuesday night to the lows seen on Friday.
Gold did pretty much the exact opposite of what many had expected should Donald Trump somehow pull off an upset victory. That being said, however, financial markets may take some time to really sort things out. Markets could potentially experience an ongoing period of heightened volatility as more clarity is provided regarding Mr. Trump’s plans for the country and the economy.
This week, investors will monitor many of the usual key data points. MBA Mortgage Applications, Weekly Jobless Claims, PPI, Housing Starts, Leading Indicators and more are set for release. In addition, there are several Fed officials speaking throughout the week at various engagements.
The focus, however, will likely remain on Trump and his plans for the future. The notion of protectionism and significant changes in immigration policy as well as the potential for swelling federal budget deficits could keep investors on their toes, and markets on edge.
To say that there is a great deal of uncertainty right now would be an understatement, and markets will be looking for a lot more clarity on key issues than what they have seen thus far.
Given the amount of unknowns right now, some have called into question whether the Fed will in fact look to lift rates next month. Although Fed Funds futures still point to a strong likelihood of a December hike from the central bank, the Fed could possibly hold off if market volatility continues, just as it did during the summer of 2015 as Chinese market volatility spread and just as it did following the historic Brexit referendum back in June.
The Fed itself is a whole nother story, as Trump has been critical of the central bank and its Chairwoman Janet Yellen.
Gold may have further downside to go, but hopefully you have kept some powder dry as lower gold prices could potentially present an excellent long-term buying opportunity. Although gold and other perceived safe haven assets have been hit hard in recent days, the euphoria over the possibility of massive infrastructure spending could fade-especially if investors begin to focus more on how such spending would impact federal deficits and potentially stoke inflation.
The bond market appears to be telling us that a December rate hike from the Fed is a near-certainty, as yields have spiked this week. The pace of further hikes, however, remains unclear. On one hand, some analysts believe Trump to be more hawkish, while some argue that his policies could potentially drive the economy into recession.
Time will tell as Trump’s plans are unveiled and put into action. For the time being, gold may actually begin to stabilize and rally after the Fed hikes in December. In our opinion, $1200 per ounce gold or even lower prices are likely to attract significant buying interest. With a long-term time horizon in mind, adding to gold holdings around current price levels could potentially prove to be an excellent value.