The gold market is slightly higher in early trade Monday as a weaker dollar index gives the market a boost. Markets are fairly quiet across the board to start the new trading week as there was little news over the weekend to shake things up.
This week’s FOMC meeting taking place Tuesday and Wednesday will likely be a primary area of focus for investors. The Fed is not expected to make any changes to its current policy. Investors will, however, be looking for any clues about the central bank’s plans for the months ahead. The Fed has taken a decidedly more-dovish tone in recent months, and that dovishness has given stocks some ammunition as they attempt to embark on a fresh leg higher. Likewise, the about-face from the Fed has also given gold and dollar-denominated assets a lift. Although no major changes to the Fed’s current wait-and-see approach are expected at this time, any commentary from central bank officials alluding to a more aggressive approach could be market-moving.
Markets will also be looking for any fresh developments in the ongoing Brexit saga. Thus far, the U.K. has no “soft Brexit” deal in place ahead of the March 29th “hard Brexit” date. Prime Minister Theresa May is likely to present another deal before Parliament prior to that date, but it remains unclear if she will be successful in negotiating a deal. Brexit discussions have been taking place now for two and a half years, and the outcome remains up in the air. There is the potential for a lengthy delay, a disorderly exit without a deal, an exit using May’s deal or even another EU membership referendum. As the deadline for a deal approaches at the end of the month, any lack of progress could fuel a large degree of risk aversion and could again trigger significant market volatility and selling pressure as it did when Great Britain first voted to leave the EU.
The continuing U.S./China trade negotiations may also begin to fuel some risk aversion and volatility again in the weeks ahead. Investors had become increasingly optimistic in recent weeks after a series of talks between trade officials from both countries were deemed to be fruitful. That optimism may begin to fade quickly, however, as there is still no meeting set for U.S. President Trump and Chinese Leader Xi Jinping to sit down and formalize and agreement. Recent reports have suggested that such a meeting may not take place until June.
In other news, the CFTC recently reported that money managers have scaled back their bullish positioning in the gold market. The CFTC’s most recent “disaggregated” report showed managers cutting long positions from 31,247 the week prior to 17,407 as of March 12th. The rise in gross-short positions of over 11,000 contracts would seem to suggest that a wave of fresh selling hit the market. This long liquidation and fresh selling interest could be attributed to a variety of factors, although the market’s failure to maintain recent upside momentum was likely a major influence.