The Week Ahead in Gold
As investors return from last week’s Thanksgiving Day Holiday, markets may see an increase in volatility and movement. Stocks are declining in early action on Monday, as some key pieces of economic data point to a slowdown. The gold market is thus far not seeing much interest, however, as prices are down nearly $2 per ounce at $1462.30.
The gold market has been stuck in a trading range in recent action, and may require a fresh catalyst, bullish or bearish, to break out of its recent range. Although stocks are moderately lower in early action today, the major stock indexes are not far from recent all-time highs. Investor appetite for risk also remains mostly upbeat and hopes for an initial U.S./Chinese deal on trade may also lend markets a large degree of support. Some positive economic data coming out of China over the weekend may also fuel some risk appetite and equity buying. Factory activity in China reportedly came in at 50.2 for November, a rise from October’s reading of 49.3. A reading above 50 indicates expansion, while readings below that level could signal contraction. The 50.2 reading is the first time in seven months that the nation’s PMI has shown growth and could potentially point to other gains ahead.
Although hopes are higher today for progress between the U.S. and China, President Trump has also commented today on metals tariffs from Brazil and Argentina. Trump said (via Tweet) that he will reinstate steel and aluminum tariffs on metals from these countries. The concern now may be what kind of retaliatory response to expect. The reinstatement of tariffs also comes at a time of rising hope for U.S./Chinese progress and could act as a major barrier to further upside in equity markets. President Trump is currently expected by some analysts to hold off on raising tariffs, a move set to take place on December 15th, in order to keep U.S./Chinese negotiations going strong. A lack of an increase could potentially weigh on gold while giving stocks and risk assets a boost. An increase as planned, however, could potentially fuel risk aversion, sending equity markets lower while providing a potential boost to gold and other hard assets.
In other news, police activity picked up in Hong Kong over the weekend. Police reportedly fired tear gas into a crowd of protestors in Tsim Sha Tsui on December 1st. Although no major injuries have been reported, the move could signal a rise in tensions between protectors and lawmakers. After nearly six months of unrest, the Hong Kong economy is set to show some lesions. The city could post its first budgetary deficit since the early 2000s. In addition, retail sales and other key economic indicators could potentially show significant weakness due to the unrest. Economic growth could be lower by two percent, or even more, this year due to ongoing unrest. Companies, both large and small, will soon be faced with major decisions. As rental agreements and employee bonuses become due, many businesses could be forced to close shop. Others could look to stay open, however, and may try to negotiate heavily on rental space and other costs of doing business. Visitors to Hong Kong have also declined sharply, reportedly by some 44 percent in October, to make matters even more challenging. The months ahead could pose a large degree of risk not only for Hong Kong but for China and the global economy.
The widespread assortment of economic and geopolitical risks may keep a floor under gold prices. The bulls have, thus far, been able to maintain trade above support at the $1450 level but need to see more upside in order to attract more fresh buying interest. The $1500 level may act as resistance on any significant rallies. A breakout above this region, on a closing basis, could lead to sharply higher prices in a short period of time.