Written by Border Gold July 30, 2018
The bears have maintained a tight grip on the gold market, and prices continue to struggle to make any type of reversal to the upside. Higher stocks, a strong appetite for risk, a rising dollar and higher bond yields have all likely taken a toll on the yellow metal. That being said, the near-term does not seem to provide much reason to be bullish.
It is important to keep in mind, however, that when it comes to the financial markets things can and do change quickly. Increasing tensions over trade, more hawkish rhetoric out of North Korea or a stock market crash all have the potential to fuel a rapid and significant reversal in the gold market. Not only is a current lack of fresh, bullish inputs holding the metal down, but slow summer trading with declining volumes is likely not doing the market any favors either.
This week, investors will likely remain focused on the ongoing war over trade and central bank announcements. The U.S. Federal Reserve, the Bank of England and the Bank of Japan will all be meeting this week. Although the Bank of England is the only central bank expected to take any action this week, these meetings do have the potential to be market-moving.
Any commentary from the U.S. Fed may draw some extra scrutiny, as the bank has drawn some criticism from President Donald Trump. The idea of rising rates could quickly put a dent into recent economic strength. On Friday, the U.S. posted a robust GDP reading of 4.1%, and leaders seem to feel confident that the economy can strengthen even further. Higher rates could make that much more challenging, however, and recent comments from Trump and others could potentially be seen as a test of the central bank’s independence. Markets still expect the central bank to hike rates twice more this year, with the next move taking place in September.
The other major report set for release this week will be Friday’s non-farm payrolls report. A strong jobs report will bolster the case for further rate hikes, while a significant miss has the potential-albeit small-to give the Fed reason to think twice.
For now, the gold market remains in a strong downtrend and prices are likely to stay under pressure in the absence of any fresh, bullish catalysts. Traders and investors may now be confident taking a wait-and-see approach to the market, as further declines could provide a better long-term buying opportunity. Some analysts have suggested that the market could potentially find a lot more buying interest in the $1180 area, which the market has not seen since late 2016/early 2017.
U.S. Treasury Secretary Steve Mnuchin has suggested that he thinks the economy could remain strong for several years to come, growing at or above 3%. Of course, numerous issues could potentially put a major dent in growth, and it remains to be seen how a fading of both recent tax cuts and government spending might affect the economy.