The Week Ahead in Gold
There is less risk aversion in the marketplace as the new trading week gets started, and easing fears are weighing heavily on the gold market. In early action, the yellow metal is down at a seven-week low, trading into chart support around $1480 per-ounce.
The market is reacting to news that the Trump administration is not considering limiting U.S. investors’ activity in China or the de-listing of Chinese companies by U.S. stock exchanges. The initial reports of such possible actions late last week threw markets a curveball, but thus far there does not appear to be any substance behind the reports. Such a move would represent a significant escalation in the ongoing trade war and could potentially fuel a large degree of risk aversion and even panic.
The trade war remains a major focal point for investors, and there is some optimism as the next round of talks approaches. A Chinese delegation will be coming to the U.S. for high-level talks on October 10th and 11th, and at the very least markets are hoping for the initial groundwork for an agreement.
The Trump impeachment drama is also likely to garner attention. Although stocks initially sold off on the news and gold got a boost, equities have since bounced back. Thus far, it seems that the impeachment inquiry has been largely swept under the rug and it’s business as usual. That could potentially change, however, if the recent whistleblower complaint gains more traction.
Of note is recent dollar strength. Since the impeachment proceedings were announced, the dollar has been on the rise and is now sitting around a fresh 12-month high. Investors appear to have a preference for the greenback over gold at this point and should that trend continue it could potentially keep pressure on the metal.
A key line in the sand for gold may be the $1480-$1490 area. A solid close below this region could signal further downside and could cause more bulls to throw in the towel. Although such a move could send the market lower and negate the recent uptrend, a significant leg lower or bear market seems highly unlikely.
Against the current economic and geopolitical backdrop, the market may not fall too far. Numerous issues, including a failure of trade talks, a no-deal Brexit, an escalation of Iranian tensions and the Trump impeachment proceedings could all move markets quickly. Given the Fed’s data-dependent stance as well, key economic reports may also move markets as rate expectations change. This week, the latest ISM Manufacturing data as well as the September non-farm payrolls report could point to further economic weakness or a rebound. Any significant misses in the data could send gold back to $1500 in a hurry as markets become increasingly dovish. Significant strength in the data, however, could be a major negative for gold as it could keep the Fed from taking a more aggressive approach to further easing.
Ongoing weakness in China, the EU and elsewhere is likely to keep the central bank easing trend intact, and the ongoing era of cheap money should continue to be supportive for gold.