The gold market will likely pick up where it left off this week. The yellow metal has been lingering near the key $1,300 level and has thus far made one serious attempt at a breakthrough.


The market has several key factors currently working in its favor, one of which is a recent shift in thinking at the Fed. Several Fed officials spoke last week (each with a seemingly different opinion) and the minutes from the latest Fed policy meeting were released. Of note is the fact that some members felt a December rate hike was not necessary and that the central bank should hold off on further tightening.


Although the Fed followed-through with its plans for a final hike in 2018, the central bank has adopted an increasingly dovish tone in recent weeks. The central bank currently has two further hikes penciled in for 2019, though that could change. Traders are currently betting on zero rate hikes this year, with some even suggesting that the Fed could end up cutting rates again this year.


Inflation data released on Friday showed consumer prices declining by .1% on a month-over-month basis and rising by 1.9% on an annual basis. These figures may work in gold’s favor. Tame inflationary pressures may allow central banks in the U.S. and elsewhere more wiggle room in terms of policy tightening and could lead to a considerably-less hawkish outlook.


The Fed will now almost certainly take no action until the second quarter at the earliest. The central bank will take a wait-and-see approach over the next several weeks. Given the recent string of poor manufacturing data in the U.S. and worrisome figures coming out of China, the potential for further equity market declines and volatility exists. Any further downside in stock markets or sharp increases in volatility could give the Fed further reason to remain on hold.


The gold market will also be watching the dollar this week. The greenback recently touched a three-month low and could remain under pressure. Investors will likely pay close attention to the Fed, looking for any clues as to the timing and extent of any further tightening. If the central bank decides to adjust its current outlook from two hikes to one, or even none, the dollar could see significant selling pressure.


Of course, these issues will need to be dealt with as the U.S./China trade war continues and as the U.S. Government remains shutdown. Although there has been some recent optimism over trade negotiations, there has thus far been nothing concrete that investors can “take to the bank.”


The ongoing government shutdown will become increasingly problematic for the U.S. With the newly-democratic House of Representatives willing to stand their ground while President Trump has insisted that he will not budge on his position, the potential for geopolitical fireworks may be on the rise.


Given the number of unknowns and the various risks currently being faced by global markets, equities and risk assets may continue to see decreasing inflows. As this asset rotation continues to gain steam, gold may finally have the horsepower to punch through key resistance and embark on a fresh leg higher.