Written by Border Gold  July 18, 2017

Gold ended the prior trading week on a high note, rising by over $10 per ounce as silver also gained ground. The yellow metal may need to get the new trading week off to a strong start in order to keep any bullish momentum going.

The gold market could potentially see an about-face as interest rate expectations change. Although the Fed recently raised rates again, there is a degree of ongoing debate as to the central bank’s plans going forward. The Fed recently reiterated its plans for another hike this year, but that hike may now not be seen until December-if it is seen at all.

There is no question that numerous key economic indicators have shown dramatic improvement in the last several months, there are, however, remaining concerns about the overall strength of the recovery.

GDP figures have not been much to write about, and the continuing lack of inflationary pressures has to be a source of concern. Recent inflation data showed price pressures rising at a 1.7% annualized rate, well below the Fed’s 2% target. While the Fed has alluded to the lack of inflation being “transitory,” the fact that prices are not rising despite ultra-low rates and increasing employment is a story that may continue to unfold.

The upcoming trading week is relatively light in terms of data release, but leading indicators and housing data could provide investors with more clues about economic activity.

A seemingly more dovish Fed could green light further buying in already overstretched equity markets, while at the same time also providing precious metals investors reason to buy. The current scenario of low rates, higher stocks and sideways to lower gold is not likely to continue much longer, and markets could be on the verge of some significant movement.

The equities markets could be setting up for a major fall, and the next major downdraft could potentially be nastier than 2008/2009-wiping out billions of dollars of investor value in the process. In fact, the Fed could even be forced to begin lowering rates once again if the stock market gets hit hard or if economic activity contracts. Any way you slice it, it would appear that the era of loose monetary policy is far from over.

The notion of relatively low rates for the next several years could be constructive for gold. With the possibility of recession on the rise, along with a major reversal in stocks, now may be the ideal time to consider an allocation in gold and other alternative asset classes.

The masses remain highly optimistic about the economy and the stock market. The gold and bond markets, however, seem to be telling a different story. Despite gold’s recent declines, the yellow metal has not fallen far from its recent trading range, just as rates have not been able to mount a significant ascent. This could potentially be a warning signal.

Gold could see further declines, although any activity at or around the $1200 per ounce level is likely to be met with heavy buying interest. Gold may simply be biding its time, until the next major bullish catalyst fuels what could be a protracted upside breakout.

Don’t be surprised at all if such a bullish catalyst comes in the form of a major stock market collapse.