Provided geopolitical and trade tensions can be contained in the week ahead, gold is liable to move lower on net economic trends, although there will inevitably be a spike higher if Middle East tensions intensify and there are further U.S. military strikes on Syria.
Although immediate trade fears eased, gold prices gained strong support during the week from a fresh spike in risk aversion. Geopolitical concerns increased sharply amid fears that the U.S. would respond aggressively with missile strikes on Syria following an alleged chemical weapons attack by the Assad government. Prices peaked at 11-week highs just above $1,360 per ounce before retreating sharply to near $1,335 and settling above $1,340 at Friday's close.
Overall trends in the dollar and risk appetite will continue to dominate during the week. Developments surrounding the situation in Syria will continue to be an important short-term focus as the U.S. and key allies await the Syrian and Russian response to weekend military strikes. U.S. and coalition forces launched cruise missile airstrikes against Syrian strategic targets on Saturday. Markets were of course closed when the military action took place and will only be able to respond at Monday's Asian open.
Spread betting markets suggest that very limited losses are likely in equity markets, which should also limit demand for gold. The lack of follow-through military action and relatively restrained reaction from Russia should underpin confidence and lead to a quick reversal of any gains for defensive assets. Demand for gold will increase sharply if there is escalation in tensions between the U.S. and Russia and a high risk of further U.S. military intervention, while any sustained easing of tensions would further reduce demand for defensive assets.
Trade tensions eased slightly following constructive comments from Chinese President Xi, but underlying stresses will remain high as the U.S. continues to exert pressure on China. Comments from the White House will be very important, with a notable focus on comments from hawkish officials such as Trade Representative Lighthizer and Director of the National Trade Council Navarro. Underlying rhetoric from President Trump will also be an important focus, especially if the Syrian situation is contained.
The U.S. Treasury currency report was issued as markets closed for the weekend, and the U.S. again declined to label China as a currency manipulator. This restraint should help ease tensions with China slightly, and any deal on NAFTA would have a small impact in curbing gold demand.
U.S. economic data releases will be monitored during the week, although there is likely to be only a measured impact. Retail sales data are due on Monday, with the headline data likely to be underpinned by a robust reading for auto sales. The latest housing starts data are due on Tuesday, with markets wary over a potential negative impact from adverse weather conditions. Industrial survey evidence will also be watched closely, especially given the ongoing debate on inflation. The New York Empire manufacturing survey is due for release on Monday, with the Philadelphia Fed survey on Thursday. As well as the headline release, data on prices will be a key element within the release.
Comments from Federal Reserve officials will be monitored closely during the week, as this will be the last week to make comments on monetary policy before the May 2 FOMC policy decision. There are no significant expectations that interest rates will be increased again at the May meeting, but Fed officials will be looking to shape the debate heading into that meeting. Inflation rhetoric will also be watched closely in Wednesday’s Beige Book release. Overall, economic developments are likely to put limited downward pressure on gold.