The week ahead may feature some market fireworks as investors get ready for the latest FOMC meeting and statement. No policy changes are expected from the central bank this week, however, markets will closely scrutinize its statements following the decision for any changes in language or outlook.

The threat of rising inflation has become an increasingly key topic for markets in recent months. Investors will pay close attention to the Fed this week, looking for any clues as to potential policy changes down the road or rising concern over inflation. Any hints of the Fed beginning to tighten policy could send both stocks and the gold market sharply lower. Markets appear to have gotten quite used to easy money and any removal of the punchbowl by the Fed could put a major dent in investor psychology.

In addition to the Fed this week, concerns and optimism over the Covid-19 pandemic may determine market direction. There has been growing optimism in recent weeks as economies heal from the effects of the virus. Several locations have, however, become a major source for concern as the virus continues to spread.The country of India, for example, has become a major area of concern as it grapples with the spread of the virus. If the situation in India and other locations worsens, it may also keep investors on the sidelines or even hitting the sell button. It is unclear how the yellow metal would react to such a scenario, although it seems the metal could climb as risk appetite dwindles.

The Fed and its easy policies have fueled more talk of a market bubble that will soon pop. Some analysts have suggested the next major breakdown is likely to occur this year or next. The biggest question appears to be whether it will be of the 30% or 80% variety. With stock valuations now double GDP, the market has reached an arguably overvalued extreme. At some point, sooner or later, that bubble will pop and valuations could come down sharply. In that event, the Fed is likely to try to respond with more of the same. The problem, however, is that the Fed already has the gas pedal to the floor. It is tough to lower interest rates enough to affect the economy when rates are already at zero. The central bank could elect to increase its QE operations, but how much more the Fed can do without destroying any remaining faith in the U.S. Treasury market is unclear. The situation will not be put under control easily, and the sell-off could occur in both stocks and bonds simultaneously. Such a scenario would turn a major sell-off into a full blown meltdown, leaving investors looking for alternative asset classes in which to stash capital. This could be a major catalyst for sharply higher gold prices and could lead to a rapid move for the metal to $5000, $10,000 or beyond.

The bulls have been fighting to retake control of the market on the daily chart. The $1800 level seems to still be a key resistance area that must be taken out on a closing basis if gold is to continue its ascent. The bears will likely target the $1700 level on the downside to gain further momentum.

The gold market could be gearing up for further upside in the week ahead. The beginning of Q2 has brought with it dollar weakness and an easing of treasury yields which are both bullish for the yellow metal. The retreat in yields and the greenback could continue, and any further declines in these assets could keep the gold bulls moving the market higher.

The drop in yields below the psychologically important 1.60% level has fueled buying in gold and could continue to boost investor optimism in the class. The yield breakdown has allowed spot gold to move above its 50-day simple moving average for the first time in months. This turn higher in the moving average could keep shorter-term traders and speculators looking for market entries. This momentum play could keep the metal on the offensive and it could potentially target ist 100-day moving average in the short term, around the $1809 level.

With increasing concern over inflation and many feeling that gold has yet to reflect the rising price risk in its price, the market could certainly have significant room to run higher. If the 100-day moving average is taken out in the week or weeks ahead, the bulls could stage a raid rally higher back to previous all-time highs or beyond.

The Federal Reserve is set to start its media blackout period this week ahead of its next policy announcement on April 28th. The lack of any Fed speakers could keep a degree of pressure on the dollar and thus could keep some upside momentum going in the yellow metal.

Before any sustainable move higher is made for gold, however, the market may want to feel more comfortable that the recent rise in treasury yields is contained. This could mean that the Fed will be battling the market on their respective inflationary outlooks. The Fed does not appear worried about inflation currently, although the market appears to be seeing increasing worries over the potential for a rapid rise in prices and may feel the Fed is already behind the curve.

Nothing further will be known about the Fed and its plans until the end of the month. The central bank is unlikely to make any changes currently, however,  and its language is likely to remain largely the same if not completely the same. The Fed will almost certainly hold its current line of keeping rates at or near zero while also pumping the economy with capital through current QE operations. At some point, the Fed may fuel a rise in inflation but that rise appears to be down the road and not of current concern.

In the meantime, gold investors will continue to monitor the economic recovery as well as the ongoing vaccination campaign. Any trouble in the vaccination campaign could set the stage for a major risk-off period that could see stocks tumble rapidly while perceived safe haven assets such as gold draw buyers. If, on the other hand, the campaign runs smoothly, hopes for an end to the pandemic could keep risk appetite elevated and stocks running higher.