The gold market ended last week with a bang, finishing higher by nearly two percent on the final trading day of the week. The market currently has upside momentum on its side and could potentially test the $1700 region in short order. The metal has numerous issues that may continue to provide strong tailwinds. The ongoing trade war, Hong Kong unrest and increasingly dovish central bank commentary may all keep the metals markets on the offensive.
The ongoing U.S./China trade war remains at the center of attention. Late last week, China announced that it would implement retaliatory tariffs on about $75 billion of U.S. goods. China’s finance ministry announced that it would place an additional tariff of 5 or 10 percent on U.S. imports starting September 1. The ministry also announced plans to resume tariffs on U.S. imports of autos and auto parts starting in mid-December.
President Donald Trump was quick to respond via twitter-his seemingly preferred vehicle. He has said the U.S. would respond, and markets will be watching closely this week for any further action taken. The President went on to add by tweet that: “We don’t need China and, frankly, would be far better off without them.”
The clear escalation of both action and rhetoric between the two superpowers had an extremely unnerving effect on the markets. The benchmark Dow Jones Industrial Average sank over 600 points while the tech-heavy Nasdaq declined by a solid three percent. It appears that there is not only a lack of progress at this point, but that the gap between the two sides is growing even wider.
Commentary from Fed Chairman Jerome Powell at Jackson Hole, Wyoming may also be a source of concern. Powell acknowledged that the economy is in a good place, and that the Fed would act as appropriate. He did, however, also highlight some key risks that could force the Fed’s hand. The Chairman’s speech seemed to back up the notion of another 25-basis point rate cut next month while easing expectations for a larger, 50-basis point reduction.
As some members of the Fed have sounded increasingly hawkish in recent weeks, Powell’s comments-which were largely construed to be dovish-may set some minds at ease. Powell seemed to grasp the significance of recent events and key issues such as Brexit, trade, Hong Kong and the global slowdown could force the Fed to have to maintain a large degree of flexibility regarding monetary policy.
Although trade may be a primary focus this week, markets will also be getting some key data points that could be significant heading into the next FOMC meeting. The latest figures on Q2 GDP, Durable Goods, Consumer Confidence, Core Inflation, Consumer Spending and more are all set for release.
Recent strength could keep the market moving higher in the next week, and any further negative developments surrounding the war on trade may keep buying interest on the rise. With little overhead resistance to speak of, the market could see another rapid and substantial run higher if new tariffs or other action is taken by either side. Any corresponding declines in stocks may also keep the yellow metal on the move. Although the chart is highly constructive, the market could see a minor pullback in the sessions ahead. The market appears to have set a new, higher bar, however, and any dips may be shallow and aggressively bought.