Today the Fed will most likely raise rates. The markets have priced that into near certainty. What is more important is the message that will come after the increase. The Fed's reaction to the 'reflation' trade spurred by a Trump victory is making assumptions of higher growth and inflation rates in the future. This trade has put the markets at record highs in the US and saw the price of gold driven down by a rising dollar and higher rates in the bond markets. What will determine the trajectory of gold in the coming year will be dependent on the message the Fed delivers.

If the Fed gives into the reflation trade and talks aggressively on inflation threats on the coming year the price of gold will suffer more. The yield curve will flatten as rate increases look to dampen the longer term inflationary prospects of the U.S economy. The more likely case is that the Fed will wait to see if this rhetoric will come to fruition in the coming year and keep an eye on inflation numbers through the first half o next year. If and when fiscal stimulus legislature gets passed you could expect to see more concern from the Fed. In this case the threat of inflation going higher than the nominal GDP rate could spur a drop in the dollar and a rally in gold as a hedge against the potential if negative real rates.

The Italian referendum gave a shock to the markets, for all of about an hour. Since the referendum the PM resigned and opened the potential for a euro-skeptic to take control in future elections. To date there doesn't seem to be much concern in the markets over the threat to the Eurozone but the seeds of a crisis are sown. The far right policies in France, Italy, and even growing in Germany will make cohesive action around the next crisis almost impossible. This will lead markets to see this as a fragmenting of the markets and yields on bonds across the region will start to diverge much more than they have now. Germany will not be exempt from the pain, if investors start to price in more of a likelihood that countries such as Italy will leave the Eurozone, inflation expectations will increase dramatically and cause the ECB to take a second look at their stimulus program.

These policy issues put more of a strain on toolkit to resolve issues and not necessarily cause the problems themselves. So the markets could continue their accent for the time being but any rise from here will be without much of a safety net for future issues that may arise.