The Week Ahead in Gold
The week ahead could potentially see some increasing appetite for risk as President Trump and Chinese Leader Xi Jinping agreed to a truce of sorts on global trade. The news sent stocks sharply higher in early action Monday while gold declined by almost 2 percent.
The meetings between the leaders of the globe’s first and second-largest economies were considered productive. The U.S. agreed to back off on some of its threatened sanctions, while China agreed to purchase more U.S. agricultural products. With both sides seemingly willing to hit the reset button on negotiations, optimism is running high and hopes for a deal are on the rise. Despite recent positive developments, however, there is still much work to be done in order for both countries to finalize and agree to a long-term trade pact. The ongoing process of producing such an agreement could take several months or longer, and markets will likely remain quite vulnerable to any negative developments on trade.
President Trump also made a surprise visit to North Korea over the weekend and met with leader Kim Jong Un. Trump made history, becoming the first sitting U.S. President to set foot into the country. Both nations have said they will resume talks over North Korea’s nuclear program. Although the U.S./North Korean conflict has been quiet and on the backburner in recent months, any easing of tensions between the two nations could also fuel buying in stocks and risk assets while weighing on perceived safe havens such as gold.
The dollar index was trading at the highest level in over a week on the news and is also likely playing a key role in gold’s declines today.
The benchmark S&P 500 is in all-time record high territory, and could potentially see a slew of fresh buyers as FOMO, or the Fear Of Missing Out, sets in. In addition to the trade war truce reached over the weekend, investors are also betting big on a rate cut from the Federal Reserve later this month. The notion of a July rate cut and possibly additional cuts to follow could keep the stock market on the offensive and risk appetite elevated.
The gold market has had an impressive run in recent weeks, and today’s declines may represent the first significant test of the recent uptrend. The bulls will need to step up this week to keep the uptrend intact, and prices may need to reclaim the $1400 level in short order to avoid another push lower. The $1450 region remains an area of focus on the upside. An upside breakout of this level on a closing basis could potentially set the stage for a major rally that could see prices retest previous all-time highs over $1900 per-ounce. A failure by the bulls to take this level out could lead to an extended period of sideways price action.
Despite recent developments, the gold market still has numerous factors working in its favor. A slowing global economy, the potential for lower interest rates, a weaker dollar and numerous geopolitical risks may all keep a floor under prices.