Market Overview: Both gold and silver are trading lower in early action today. Following recent gains, these markets are both vulnerable to a pullback on some profit taking. Investors are questioning the Trump rally at this point following some recent selling in stocks and a pop in market volatility. Stocks saw a good bounce higher yesterday after seeing some moderate selling over several previous sessions. The question now may be whether or not yesterday’s rally in stocks was simply some short covering or if the rally is set to resume with willing buyers stepping in on the dip.
Key Data Points: The latest data on MBA Mortgage Applications showed a rise in new home purchase applications but a decline in refinancing activity despite a drop in interest rates.
February’s Pending Home Sales Index saw a significant jump with a reading of 5.5 percent, above consensus estimates of a 2.4 percent rise.
Outside Markets: Stocks and crude oil are trading essentially flat thus far in early action as interest rates see a slight decline. The dollar index is moving higher in early trade today although it remains unclear if this is simply a relief rally of buyers and stepping in and buying the dip. The dollar index remains below the 100 level and is in a firm downtrend at this point.
The Big Picture: Great Britain triggered Article 50 today, calling for its official separation from the European Union. Thus far, the action has not had much, if any, effect on the metals markets or stocks for that matter. There could potentially be significant volatility ahead, however, as negotiations over Brexit could take years.
Fallout over Brexit could potentially keep a floor under the price of gold for some time, and any significant hiccups in the separation process could potentially trigger selling in stocks and risk assets while fueling buying in perceived safe haven assets, such as gold.
Gold investors will also continue to monitor any new developments regarding the Trump administration. The administration recently failed in its efforts to repeal the Affordable Care Act, otherwise known as Obamacare. If investors become increasingly nervous over the administration’s ability to implement its other key policies, such as tax reforms and massive fiscal spending, this could also weigh on risk assets and fuel risk aversion.
Should it become apparent that the administration will not be able to deliver on some of its campaign promises, markets could potentially see a significant sell-off and increase in volatility.