Market Overview: Gold is seeing some strong buying today as risk aversion weighs on global markets. There are currently several issues that could continue to fuel an ongoing rally in gold including the upcoming “Brexit” referendum, falling interest rates and skittish equity markets. Gold appears poised to challenge the May highs and could potentially see a significant leg higher if market volatility increases.
Key Data Points: There is no key data set for release today, however, investors will have plenty to scrutinize the rest of the week. Investors will get the latest readings on Retail Sales, PPI, Industrial Production, CPI, Weekly Jobless Claims, Housing Starts and more.
The central point of focus will almost certainly be Wednesday’s conclusion of the FOMC meeting.
Following the disappointing jobs data for May, which showed a very modest increase of just 38,000 jobs, the Fed is likely to remain on hold this month and chances of a July hike appear to be quite slim. Given the softness in the labor data along with ongoing weakness in the global economy, the Fed could decide to hold off until September or even beyond. The central bank will likely stick to its stance of any decisions on rates being data dependent and may not give much more clarity on the timing of another hike at this point.
Markets may remain somewhat subdued heading into the announcement, although increasing volatility could be seen as it approaches and markets may exhibit some volatility after its release as investors try to sort out the statement.
Outside Markets: Stocks are trading slightly lower in early action today following some sharp losses on Friday. Equity investors appear to be becoming more anxious as interest rates continue to decline and as economic weakness is seen in the global economy. While stocks remain close to previous all-time highs, the market could potentially decline from current levels, and gold could potentially benefit as investors seek out alternatives.
The dollar index was sold off following the May jobs report and could see further downside pressure if the Fed sounds more dovish in its comments. The greenback is within striking distance of the May lows, and a breakdown below could potentially see the dollar slide further. This could also potentially be a significant bullish catalyst for gold and precious metals.
The Big Picture: The path of least resistance in gold remains higher as the current economic and technical backdrop remain supportive. The notion of negative rates, a possible exit by Great Britain from the EU and ongoing concerns over the global economy may all potentially drive buying in gold and other perceived safe haven assets. A significant decline in stocks or the dollar may speed gold’s potential ascent, while new highs in equities or a more hawkish Fed could potentially weigh on the market.
