THE WEEK AHEAD IN GOLD – APR 23, 2018

Written by Border Gold     April 25, 2018

Recent developments have shown just how quickly the geopolitical landscape can change-for better or for worse. Fortunately, in this case, it has been for the better.

The conflict between the U.S., its allies and North Korea has been widely discussed for several months now. The North Korean regime has conducted multiple nuclear tests, has fired several missiles, and has been talking up its military capabilities for some time now. The saber rattling clearly caught the attention of global leaders, who want North Korea to give up its weapons program or face further consequences.

In a surprising move, the nation recently stated that it would immediately suspend nuclear and missile tests. In addition, the country also said it would scrap its nuclear test site.

The country’s leadership has suggested that it is willing to put a stop to the program because it has already achieved its goal of developing such weapons. Although the news represents a major development in non-proliferation talks between the U.S. and North Korea, it does also fall short of Washington’s demand that the nation completely dismantle all existing missiles and weapons.

Although recent comments may be construed as a big step in the right direction, global leaders will be looking to action. The news will likely, for now, deflate some of the recent flight-to-safety bid in the gold market.

In other geopolitical news, recent tensions between the U.S. and China also appear to be cooling off. After trading tariff threats over a period of weeks, the two nations appear to be looking for a way to bridge the gap on trade. It has been reported that U.S. Treasury Secretary Steve Mnuchin may be headed to China to discuss the matter and seek a viable resolution.

Central bankers and finance ministers have suggested that the potential for a trade war represents a great threat to the global economic upswing, and increasing tensions over global trade could fuel further significant market volatility.

Like market volatility, the heightened geopolitical tensions seen in recent months appear to be mean-reverting, or calming down to more “normal” levels.

The question is: will it last?

As the geopolitical landscape takes on a calmer tone, investor focus is likely to turn to market fundamentals and key outside markets. The dollar index will likely be a primary area of focus this week as it has been a major catalyst for higher gold.

The dollar index has seen a recent bounce, as bond yields climbed and the yield curve steepened. Although the dollar still remains vulnerable to a fresh leg lower, higher yields could keep the currency from falling much further, and could put a halt to the short dollar/long gold trade seen in recent weeks.

Should that prove to be the case, the gold market is likely to tread water in the absence of any fresh bullish inputs. In the meantime, any dips in the market could present an excellent buying opportunity and long-term value. Given the amount of potential headwinds for stocks and risk assets at this point, a sharp and significant rally in gold would not seem to be a question of “if” but rather “when.”

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