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Gold Alert: The Captain Has Turned On The Seatbelt Sign

Kitco News

(Kitco News) - April 3 -  Ladies and gentleman. The captain has turned on seatbelt sign. Please remain in your seats and brace for a bumpy ride ahead. We have dropped altitude in search of smoother air, but have not been able to find it at this time. Air traffic control has warned us that we are facing a perfect storm including high winds, bends in the jet stream and the aircraft's wake vortex.

The stock market has hit its cruising altitude in recent weeks and has already had to notch down from 40,000 feet to 36,000 feet in search of smoother air. None to be found as of yet. Stock investors should prepare for the "brace" position as a number of event risks could unfold in the weeks ahead to disrupt the bull market.

Here's a look at 3 event risks that lie on the horizon that could send shockwaves through equity markets, and in turn trigger a new bull wave in the gold market.

  1. North Korean Nuclear Tensions
  2. President Trump has put North Korea on notice that the U.S. is willing to take unilateral action against the nation if China fails to contain the developing nuclear power.  In a Sunday interview with the Financial Times, Trump indicated his intention to attempt to craft a deal during his meeting this week with Chinese President Xi Jinping regarding U.S. imports of Chinese goods to cooperation regarding North Korea.

  3. Tax Reform Is In Trouble
  4. The massive tax cuts proposed by the Trump Administration are already running into opposition. The tax cuts, combined with defense and infrastructure spending increases are forecast to increase the budget deficit. The right-wing of the Republican Party already balked on the "repeal and replace" version of the health care bills and is expected to stir the pot on tax legislation too. The problem? Wall Street has already priced in massive corporate tax cuts during the first quarter rally in stocks. A correction could lie just around the corner.

  5. Debt Ceiling Debate
  6. The debt ceiling is poised to become a political football. The continuing resolution (CR), which averted a government shutdown in December, is set to expire on April 28. That is the date that Congress will need to raise its legal limit on federal borrowing, also known as the debt ceiling. Just a reminder kids, the increase is needed to authorize government spending for bills already accrued by the U.S. Back in 2011 the mere threat the debt ceiling might not be raised triggered the first U.S. credit downgrade in history – and helped send gold prices to their all-time highs above the $1,900 per ounce level.

Treasury Secretary Steven Mnunchin, a former Goldman Sachs banker and then hedge fund manager, understands the catastrophic impact to the United States, the U.S. dollar and our interest rate picture if the U.S. were to default on its debt. However, there are others at the helm, who offer a different view. President Trump during the campaign told Chris Wallace in a Fox News interview that "I would be very, very strong on the debt limit. And I would be asking for a very big pound of flesh if I were the Republicans."

Current Office of Management and Budget Director Mick Mulvaney was part of the "Shutdown Caucus" back in 2013, a group of conservative House Republicans who were willing to walk a hard line on closing the government over a debt ceiling increase.

The Bottom Line

There are a number of geopolitical, economic and political issues looming like black clouds on the horizon. Any one of these risks could open the door to a sharp jump in gold prices. Current levels around $1,250 an ounce could be the lowest that gold trades for the remainder of 2017. The $1,350 an ounce area would be the first target for gold bulls on an upside breakout from the current holding pattern.

Fasten your seatbelt tight, the stock market ride is going to be bumpy ahead and gold will be the beneficiary from that turbulence.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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