The Week Ahead in Gold
The gold market is slightly lower today following the Martin Luther King Jr. Holiday yesterday. The yellow metal is lower by over $2.00 per ounce at $1557.80 in mid-am trade. With no major economic reports due for release today, the markets are poised to focus on the larger issues at hand. These include geopolitics and The World Economic Forum meeting in Davos, Switzerland.
U.S. President Trump has already delivered an address in Davos, and reportedly spent most of his time discussing U.S. economic growth since his tenure began. Bridgewater Associates Founder Ray Dalio is also at Davos and reportedly discussed the importance of gold within a portfolio that could be derailed by multiple global uncertainties.
In other major news this week, the Donald Trump impeachment trial is slated to begin today, although it appears that the Democrats and Republicans are still trying to figure out the groundwork for the battle. Whatever is decided, testimony should begin shortly but investors thus far appear to be focusing their attention elsewhere. That could change quickly, however, if any major rules changes to the trial are seen or of it appears that some Republicans may be willing to side with Democrats on the impeachment issue.
As 2020 gets going, investors are also likely to remain focused on global equity markets and price action. The U.S. markets are not far from recent all-time highs and could very well challenge those highs in the days ahead. Given the length of the current bull market, however, as well as possible reluctance by the Fed to lower interest rates further, some investors may begin to more strongly question how much gasoline the stock market may have left in the tank. A sharp or sudden decrease in equity market valuations could set the stage for a larger decline lower or potentially even the next major bear market. A rise in risk aversion could keep the gold market on the offensive as investors stampede stocks for the exit signs.
The gold bulls continue to maintain the near-term technical advantage. The daily chart still shows prices in an uptrend, although the bulls will eventually have to test the September highs around $1570 to keep the rally going. The bears will likely target support in the $1525 region followed by the $1500 level. The market may spend some time between these levels, however, as investors take a wait and see approach to how ongoing U.S./China trade talks pan out in the weeks and months ahead. The recent signing of a “phase 1” deal has fueled some risk appetite, although details remain scarce. For stocks to continue their ascent, the two superpowers will need to put something long-term in writing and markets must have the ability to make their own judgements on the agreement. Such an agreement is likely to take more time, and markets may have to be patient if they are looking towards an agreement as the catalyst for the next rush higher.