The Week Ahead In Gold
In some ways, the world looks very different than it did just a week ago. Last week, another chemical weapons attack in Syria took the lives of innocent citizens, and the effects of the atrocity were broadcast all over the internet.
This time, however, the attack did not go unanswered.
On Thursday evening, U.S. President Donald Trump authorized a tomahawk missile strike that intended to send a strong message to Syrian leader Bashar al-Assad.
Whether or not the strikes will prove effective for that purpose remains unclear.
The amount of actual damage done was questioned on Friday, as reports of Syria using the airfield to launch planes was reported. Either way, the situation has created a good deal of uncertainty that had a significant impact on markets Thursday evening.
Following the U.S. military action, stock index futures sank while gold and bonds saw heavy buying.
The immediate reaction proved fleeting, however, as calmer heads prevailed on Friday and as the risk aversion mindset largely faded.
The reversal of markets on Friday was especially curious given the absolute dud of an Employment Situation Report. The U.S. Department of Labor and Statistics reported the country added just 98,000 jobs last month. Consensus estimates were looking for an addition of 175,000 jobs. The much lower than expected figure was also particularly interesting given the upbeat ADP employment report earlier in the week.
Investors will take a very keen interest in the next jobs report for April to be released the first week in May. Another major miss like that seen on Friday could potentially keep the Fed on hold and build upon some recently increasing dovish sentiment.
For now, the central bank will likely stick with its forecast for two additional hikes this year. Fed funds futures contracts are pricing in a very strong likelihood of another hike coming in June.
The gold market appears to have a number of things going for it currently that could potentially continue to propel prices higher in the coming weeks and months. The Trump administration and geopolitics will play a major role in price action not only in the metals markets but numerous financial markets.
If the situation with Syria escalates further, the flight to safety trade may be back on. The U.S. also may have to contend with strained relations with Russia over the conflict. Any signs of saber rattling or aggression by Syria or Russia could fuel a flight to safety, and could weigh heavily on risk assets.
As if these issues are not enough, North Korea is considered by some to be the biggest current threat to U.S. security. The unpredictable behavior by North Korean leadership along with the country’s nuclear aspirations could potentially prove to be a powder keg of geopolitical tension and conflict.
Geopolitics aside, investors will also continue to take a wait-and-see approach regarding the Trump administration. The recent failure of the administration to repeal the Affordable Care Act is likely fueling some serious doubts about its ability to pass other key pieces of legislation such as tax reform and fiscal spending.
All of these factors, along with the possibility of a more dovish Fed, could keep the gold market on the offensive in the near-term and any significant dips are likely to be seen as a good buying opportunity.