The Week Ahead in Gold
Both stocks and gold are getting the week off to a strong start. In late morning trade, the benchmark Dow Jones Industrial Average is higher by nearly 1200 points. Spot gold traded higher by 3% at one point this morning and is still up significantly for the session.
Hope for a peek in coronavirus infections is driving some investor optimism today. Some banks have also suggested that now may be the time to buy stocks, with the worst behind the markets at this point. Although it is too early to tell, some optimism is not surprising as Americans and people elsewhere continue to struggle with stay at home orders and as public meeting spots remain closed. In fact, President Trump recently extended the closure of bars, restaurants and other locations until the end of April. Most employers will also remain closed until the end of the month and a resumption of professional sports is still an unknown.
The recent monetary stimulus provided by the U.S. Government is also a positive. The package is likely way too small, however, to ward off the depths of the coming recession. It is important to keep in mind that even as businesses start to reopen and things get back to normal, consumer habits will have changed. People may not spend the way they did just a couple months ago, and a lack of consumer spending could send the U.S. into a recession the likes of which has not been seen since the Great Depression.
In addition to the threat of coronavirus spreading further and the economic challenges it may pose, the markets are also still dealing with an oil price war. Saudi Arabia and Russia are reportedly close to a deal that would cut production and likely give prices a lift. An online meeting was set for today to discuss a cut, but that meeting has been rescheduled and will now take place Thursday. The benchmark U.S. 10-year yield has inched up from levels seen late last week and is currently sitting around .65%. The dollar index is seeing some upside today as well, as the currency looks to maintain trade above the 100 region. Although a challenge of the March dollar highs could weigh on the gold and silver markets, a higher dollar may not currently affect the yellow metal as much given the surrounding circumstances.
The notion of a deep and extended U.S. recession may keep the gold market moving higher in a slower, more sustainable fashion. The market is poised to challenge the $1700 level in the days ahead, and if it stages an upside breakout it could challenge previous all-time highs near $2000 in short order. The gold market has already seen a significant pullback from recent upside, and that decline was met with willing buyers. The bulls would seemingly have a green light to take prices higher and may do so in the days and weeks ahead.