The gold market has found itself on more solid footing in recent action as a mix of geopolitical issues and poor economic data drive buying. Although gold has been trending higher in the past couple of weeks, the question becomes whether or not the yellow metal will see enough capital inflows to breach its recent high around the $1300 level.
There is no question that the safe haven bid has been very supportive of gold, and with so many wildcards being seen right now in geopolitics, it is difficult to imagine a scenario in which safe haven buying in gold substantially dries up.
Investors will continue to monitor the any further developments concerning the Trump administration and the investigation into potential Russian meddling in the recent Presidential election. The recent firing of FBI Director James Comey along with the appointment of a special counsel to oversee the ongoing investigation into potential Russian interference are not likely to do overall investor sentiment any favors.
In the meantime, investors will also turn their attention back to the data stream and the upcoming Fed meeting minutes, due to be released later this week. It is a very busy week from a data standpoint, with markets getting the latest readings on key pieces of economic data including New Home Sales, Weekly Jobless Claims, Durable Goods Orders, GDP and more.
The Fed will likely be paying very close attention to the latest data, as some recent disappointments have fueled some speculation about the central bank possibly delaying an anticipated June rate hike. All things being equal, however, the Fed does appear set to continue with its previous plans of a June hike and another rate hike coming before year’s end.
The Fed meeting minutes this week may reiterate that the central bank remains on track to hike next month. Although a more hawkish tone from the central bank could deflate the gold market a bit, the market has likely already fully discounted two more hikes from the central bank this year. A more dovish tone, however, could fuel a significant amount of buying in gold that could potentially set up a test of the recent highs.
The dollar index will also be closely watched by investors, as the greenback has sunk to a fresh six month low. The dollar has now given back all of the gains seen after the Trump election victory, and appears poised for even more downside.
Recent price action in both gold and silver has been constructive. That being said, however, the markets may require a fresh bullish catalyst in order to breach their respective recent highs. This catalyst could potentially come in the form of a stock market collapse, a surprisingly dovish Fed or numerous geopolitical influences.
For the time being, the metals markets appear to be finding buyers on any significant sell-offs, and in the absence of any fresh catalyst appear to be quite comfortable in their recent trading ranges. This could potentially be viewed as an opportunity for accumulation, as any upside breakout in the metals complex could be quite significant.