The Week Ahead In Gold
The Federal Reserve appears to be in no major hurry to raise interest rates, and investors may continue to focus on the Trump administration as it continues to try to implement its policies.
The FOMC meeting last week resulted in no changes being made to interest rates. Although no action was expected from the central bank, the Fed appears to be erring on the side of caution at this point. The central bank may want to see exactly what the Trump administration has in mind for fiscal spending plans and tax reforms before becoming more aggressive with its tightening.
It would also seem that perhaps the central bank wants to take a wait and see approach regarding Trump’s other policies.
The recent immigration ban implemented by executive order was blocked on Friday by a federal district court in Seattle. The Trump administration then had the Department of Justice request an emergency stay on Saturday, which was denied by the U.S. Court of Appeals for the 9th Circuit in San Francisco on Sunday.
This “disagreement” is far from over, and more legal battling is expected. The situation has gotten especially nasty, with Trump even lashing out at Judge James Robart, who ruled against Trump’s ban on Friday. Trump tweeted “The opinion of this so-called judge, which essentially takes law-enforcement away from our country, is ridiculous and will be overturned!”
The recent ban on immigration from several Muslim countries as well as a halt to the U.S. refugee program are just a few of the issues that are likely to remain at the center of investors’ attention.
Although it has taken a bit of a backseat this week, the Mexican border wall plans will likely cause more of an uproar, and recent tough talk with Iran could potentially intensify.
Stocks are holding up well-for the time being anyway- but the weight of so much uncertainty, both political and economic, may begin to take a serious toll on investor sentiment.
Gold has been building positive upward momentum, a trend that could quite possibly continue given the current geopolitical landscape. If equities continue their climb, the rally in gold could potentially begin to become fatigued.
The dollar index could be a major factor in gold’s price action in the coming weeks. The dollar still appears to have put in a top, and if the U.S. continues to upset some of its key allies, the greenback may see further downside pressure. Add to that the confusion over Trump’s stance on the dollar, and markets could get interesting.
The U.S. has traditionally pursued a strong dollar policy, although recent comments from the Trump administration about a “grossly undervalued” euro and previous comments made about China are leaving traders guessing.
For the time being, the path of least resistance in gold appears to be higher. The gold market will likely take its cues from Trump headlines, overall risk appetite or aversion, equity markets and the dollar index.
Even if equities remain on the strong side, gold may remain well-supported given current headline risks and the potential for significant international issues.