The gold market today hit a fresh 7-month high as increasing risk aversion and technical buying fuel further upside. There are several key issues in play this week that could potentially keep investors on edge and drive demand for the yellow metal.
What Could Fuel More Upside in Gold This Week
- The FOMC: The Fed is holding its policy-setting meeting on Tuesday and Wednesday this week. The markets are pricing in a 0% chance of a rate hike this week and will rather focus their attention on the presser following the announcement. There have been reports that the central bank could be nearing or already has arrived at a decision to halt its QT earlier than anticipated. This news had a major effect on markets last Friday and drove strong gains in stocks while also fueling a $20+ rally in gold. If the Fed takes a dovish tone this week, it could also act as a major catalyst for higher gold prices.
- The Trade War: The ongoing U.S./China trade war has been the topic of considerable discussion, especially as the economies of both countries are clearly slowing. U.S. and Chinese officials will be meeting in Washington D.C. later this week to discuss trade, although there does not seem to be much optimism in the marketplace for a deal materializing any time soon. The U.S. also recently indicted Chinese tech company Huawei on various charges including lying to the FBI and offering bonuses to employees for stealing trade secrets. The indictments are sure to add to already festering hostilities between the two nations and could make a deal on trade that much harder to hammer out.
- The UK Parliament is voting today on the “Plan B” Brexit initiative from Prime Minister Theresa May. Her last Brexit plan was voted down just a few weeks ago and the ongoing uncertainty over the issue continues to weigh on sentiment.
The gold market is also benefiting from technical buying today as the bulls look to put more distance between current prices and previous technical resistance. With an uptrend now well-established on the daily chart, the market remains in “buy the dips” mode until proven otherwise and may see fresh buying continue on further upside momentum.
The gold market is currently up $7.55/oz at $1,309.96 in early action. A combination of increasing risk aversion and technical buying are behind today’s rise. Recent dollar weakness has also played into the recent rally and further downside in the greenback could fuel further buying interest. The next upside target for the bulls may be a close above resistance in the $1,330 region. The market may now find support at previous resistance in the $1,300 area and below that at the recent lows around $1275/oz.