The gold market is getting the week started off on the wrong foot, as prices are losing ground as the dollar strengthens and crude oil declines. This week is a short week due to the Thanksgiving Holiday, and price action could potentially see some added volatility due to lighter trading volumes.
The gold market appears to be in an ongoing stage of accumulation. Recent data from the CFTC seems to suggest that hedge funds have been buying gold again, and the net long position in the market is at a modest multi-week high. Although recent buying by larger players may not be anything too exciting, it could be a healthy thing for the market and could potentially point to an upside move that may be more sustainable.
As is usually the case, the bigger picture is what’s most important here, and the motivations for funds and large players to be accumulating gold could fuel significantly higher prices. It would seem that many investors are looking to take a more cautious approach going forward as numerous economic and geopolitical issues could warrant such an approach.
The aging bull market in stocks could get hit hard by a failure of U.S. lawmakers to pass tax reform. Estimates vary on just how much of an effect this could potentially have, but it seems to be a major issue that could possibly become the catalyst for a major reversal in equities. Not only does the U.S. have a number of economic and geopolitical issues to contend with, but recent developments in the Eurozone could also weigh on global markets and risk appetite.
The recent collapse of German government coalition talks could revive the widespread risks to the region that had seemed to be put on the backburner in recent months. The election of France’s Emmanuel Macron seemingly calmed investor psyche regarding risks in the region, and much of the risk premium that was attached to trade regarding Europe has been removed in recent months.
Uncertainty now surrounding the zone’s strongest and most influential nation could bring back much of that risk premium, and could have a far-reaching impact on global markets. After all, it wasn’t long ago that many investors and money managers felt that the potential for a breakup of the EU was a real possibility that needed to be priced into financial markets. Either way, the uncertainty now being seen going into the end of the year is likely to dampen investor appetite for risk and may become more of an issue if further troubles are seen.
The failure of coalition talks in Germany and the recent issues seen in Spain regarding Catalonia could be the first wave of renewed geopolitical issues in Europe and investors will likely keep an eye on the region for more symptoms of turbulence.
Long-term gold investors will likely remain happy to buy gold at current levels or on any significant dips. In addition, a move beyond recent highs could also potentially set the stage for more aggressive buying as the market’s technical picture improves. The potential for a major reversal in stocks, a weaker dollar and global geopolitical issues will all likely keep the market on solid footing.