The gold market hit a 6-year high in recent trade and appears poised for further upside. The metal may be vulnerable, however, to a corrective pullback before seeing a fresh leg higher in price. The market currently has several tailwinds working in its favor, and the trading week could bring with it fresh news that could propel the market beyond its recent highs.
The ongoing U.S./China trade war is having a measurable effect on the economies of both countries. Since talks broke down several weeks ago, there has been little, if any, dialog between the two nations on trade. U.S. President Trump is set to meet with Chinese Leader Xi Jinping later this week at the G20 meeting in Japan, and markets appear to be pinning their hopes on some productive talks being had. Progress towards a long-term agreement could have far-reaching implications for global markets and could fuel a major shift in investor sentiment. If the two leaders are unable to find any common ground, the ongoing dispute could pressure stocks while keeping gold and other perceived safe haven assets on the offensive.
Current U.S./Iran tensions are also playing a role in recent market action. Over the weekend, the U.S. reportedly announced that it had launched cyber-attacks against Iranian assets tied to the Revolutionary Guard. This action comes on the heels of a reported military strike that was called off at the last minute by President Trump. The U.S. is also set to impose major new sanctions against Iran this week that could potentially stir the pot even further. If Iran is not willing to come to the bargaining table, the potential for military conflict will hang over markets and likely keep a floor under gold prices.
A slumping dollar index may also be an area of focus this week, as the greenback recently traded at a 3-month low. The dollar is likely feeling the effects of an increasingly dovish Fed as markets price in a July rate cut and the strong potential for additional cuts later this year. In addition to the Fed’s about-face, the dollar may also be under pressure as the effects of recent tax cuts and government spending fade.
The gold market currently has a combination of economic and geopolitical factors working for it that could keep the market moving substantially higher. The increasing risk of a global recession, the potential for lower rates, a weakening dollar and numerous geopolitical risks may keep the yellow metal well-bid, and a run higher of another $100 per-ounce or more in the weeks ahead seems to be an increasing possibility.
Current market fundamentals could be considered highly bullish for gold, and the market’s technical posture is now also pointing to further upside. The market is now in an accelerating month-long uptrend on the daily chart, and the bulls may look to test a solid area of resistance around $1450 in short order. A breach above this level on closing basis could set the stage for a push towards previous all-time highs over $1900 per-ounce in the months ahead.