The gold market is showing further signs of strength today to kick off the new trading week. Stocks, crude oil and the dollar are all moving lower today.
The gold market has maintained a relatively tight trading range in recent action, but the longer gold goes sideways the more potentially significant a breakout may be. Gold is likely awaiting further inputs before seeing a meaningful breakout, and market participants will certainly get a lot more to think about this week.
This week, investors will get the latest readings on Existing Home Sales, Durable Goods Orders, Pending Home Sales Index, GDP, Weekly Jobless Claims, Personal Income and Outlays, Chicago PMI and Consumer Sentiment.
In addition, the FOMC meeting is this week as well as a meeting by the Bank of Japan. These two meetings both have the potential to be market moving, and U.S. investors will pay special attention to the Fed’s remarks regarding interest rates.
While no hike is expected this week, the central bank could allude to an upcoming hike in June, or possibly December. As interest rate expectations have shifted in recent months, the general consensus appears to be two rate hikes being implemented this year. The Fed will likely continue to cite weak global economic activity as a reason for holding off on additional hikes.
The Bank of Japan may go deeper into negative interest rate territory in another attempt to jump-start its sluggish economy. Japan has been seemingly stuck in a vicious deflationary cycle for many years and has thus far not been able to get its economy out of the current rut.
As Japan, the ECB and China all continue to fight slowing growth with various stimulative measures, the U.S. is likely to be very patient in the pace of further interest rate hikes. Just because the U.S. has put an end to its QE program and era of zero interest rates does not necessarily mean that rates are likely to go significantly higher any time soon. In fact,with the notion of slow global growth for the foreseeable future, gold investors may be quite comfortable buying the precious metal in the face of potential rate increases.
The dollar index is sagging once again and could potentially be the kindling that lights a fire under gold prices. The greenback is approaching a key support level that could potentially see buyers step in. On the other hand, a breach below this level could potentially start a significant, fresh leg lower in the dollar that could possibly drive buying in gold, silver and other dollar denominated commodities.
