Market Overview: The gold market is flat to slightly lower early this morning after trading higher in overnight action. After seeing some very strong gains in recent weeks, gold appears to be consolidating a bit before more potential upside. Even as stocks attempt to make fresh all-time highs, the gold market is seemingly well supported by numerous economic factors. Gold could, however, become more vulnerable to a pullback this week if upside momentum is not maintained.
Key Data Points: There is no major economic data set for release today, and investors are likely continuing to digest Friday’s stronger than expected Employment Situation report. With the Department of Labor reporting the addition of 287,000 job in June, investors may be feeling better about the state of the U.S. economy, especially after the dismal jobs report seen for May.
The rest of the trading week will provide investors with more information to chew on, however. Markets will get the latest readings on MBA Mortgage Applications, the Fed Beige Book, Weekly Jobless Claims, PPI, CPI, Retail Sales, Empire State Manufacturing and more. In addition, a number of Fed officials will also be speaking this week.
Investors will likely closely scrutinize the data stream and any commentary from Fed officials, looking for any further clues as to the potential pace and timing for further rate hikes.
Outside Markets: The ongoing divergence between stocks and interest rates will likely be a large topic of debate. As stocks appear headed into new all-time high territory, interest rates remain at record lows. At some point, one market or the other could potentially see a significant reversal.
Gold has shown some strong resilience in the face of higher stock prices, and like treasuries, may be benefitting from increasing safe haven demand.
The dollar index appears poised for further upside, as risk aversion and weakness in other currencies boosts demand for dollars. Once again, however, gold has shown some solid strength even in spite of a rising dollar.
The Big Picture: With so many issues currently being debated, gold may continue to be bought on dips. While headlines have been somewhat quiet since the Brexit vote was finalized, headline risks do remain and it may be unclear for some time just how the Brexit vote will impact the global economy.
Even with Friday’s stronger than expected jobs report, the Fed may elect to keep rates steady for now at current levels, and the notion of low rates for the time being may also be constructive for gold and precious metals.
While gold remains technically strong, some back and fill trade and profit taking could potentially be seen before another possibly significant move higher.
