The gold market is on considerably stronger footing and could potentially be poised for further upside. The market is set to challenge its late February highs, and an upside breakout could potentially see a fresh leg higher in price.
The yellow metal has a number of things working for and against it currently. The bulls, however, are winning the tug-of-war. Political uncertainty has been a factor in gold’s recent ascent, and Friday’s non-vote on the Trump administration’s bill to repeal the Affordable Care Act will likely fuel further risk aversion.
The Republicans were set to vote on the proposed legislation on Thursday, but were forced to postpone as they lacked the necessary votes. As the day progressed on Friday, it was seemingly becoming more and clearer that the party still did not have the votes necessary to vote on the bill.
The bill was eventually pulled in what many are calling a major defeat for the Trump administration. The failure to pass this legislation could be extremely significant, and could have a major effect on the administration’s ability to get other parts of its agenda signed into law. In fact, this could potentially call into question the President’s plans regarding tax reforms and fiscal spending.
The rally in equities over the last several months has been built on the notion of lower taxes and massive fiscal spending. If it appears that the administration will not be able to follow through on these policies, the stock market could potentially reverse course in a major way.
The gold market may also be getting a boost from a more dovish-sounding Fed. The central bank recently raised the Fed Funds rate by a quarter point in a move that was expected. The bigger question, however, was whether or not the Fed would make any changes to its forecast.
Following several weeks of hawkish rhetoric from various Fed officials, the central bank did not make any changes to its forecast, and still has three rate hikes penciled in for 2017 followed by another three rate hikes in 2018.
There had been some widespread discussion of a fourth rate hike this year, but the central bank stuck to its previous plans. This may have been a sigh of relief for the metals markets, and it has also had a negative impact on the dollar index.
The gold market will be paying close attention to stocks and the market’s overall reaction to Friday’s non-vote. Concerns over the Trump administration’s ability to move forward with its agenda could begin to weigh heavily on stocks. With the bull market really aging at this point, a minor correction in equities could quickly turn into a much larger pullback. Should stocks begin to falter, much of that investment capital could find its way into alternative asset classes, and gold could potentially stand to benefit.
Changes in investor sentiment and an improving technical posture could fuel further near-term upside in gold. A weakening dollar, stock market volatility and falling rates may also add to the metal’s allure.