Gold Higher As Inflation Remains Problematic

/in , /by

The gold market is moderately higher in early action Thursday as the latest reading of inflation remains stubbornly high. The yellow metal is moving up as stocks show more weakness and as crude oil declines while the dollar strengthens. The Biden Administration has been discussing releasing crude from the Strategic Petroleum Reserve to the tune of some 1 million barrels per day for a total release of some 180 million barrels. The OPEC cartel is meeting today to discuss their production going forward, and changes to production levels could potentially be seen from May going forward.

 

While the crude oil market is certain oy playing a role in gold’s fortunes, the dollar is also an important outside player. Today, the dollar is higher on the session and since trending higher throughout February and much of March, the currency has been sideways to lower. The dollar has once again bounced off of the 98 level, however, in what some may view as a bullish sign. A breakdown below the 98 level on a closing basis could set the stage for a sharp decline further, possibly seeing the currency fall to 96 before finding some solid support. Any weakness in the dollar is likely to have a strong benefit for gold as it makes the metal relatively less expensive for foreign buyers.

 

Of course, in addition to the crude market and the dollar, inflation also remains the subject of much debate and a major problem for global markets. A key inflation gauge monitored by the Fed saw a rise of 6.4% in February for a 40-year high. Stripping out the volatile food and energy markets, core inflation still hit a rise of 5.4% from the same period 12 months earlier. Strong consumer demand has combined with shortages of goods and supplies to fuel the sharpest rise in inflation in four decades. As if these figures were not bad enough, they will almost certainly worsen in the months ahead as these readings did not even factor in the Russian invasion of Ukraine.

 

As inflation squeezes American wallets, consumer spending is likely to fall. Consumers reportedly increased their spending in February by a skinny .2%, far below the rise of 2.7% seen in January. Adjusted for inflation, spending actually saw a decline of .4% last month and further declines could push the U.S. into economic recession. A brief inversion of the yield curve this week could also point to a looming recession, and fears over a major economic slowdown could fuel stock market volatility for months to come.

 

Spot gold is up nearly $7 per ounce in early action today at $1939.60. The bulls have their work cut out for them, as they will need to produce a close above resistance at the $2000 level before anyone gets overly excited. The bears, on the other hand, are still trying to take prices lower to produce a close below the $1850 level. This seems unlikely, however, given how dips have been bought thus far.

Gold Higher As Crude Oil Gains

/in , /by

The gold market is higher in mid-morning trade Wednesday as crude oil sees some upside. The metals are also seeing some corrective bouncing after being pushed to five-week lows yesterday. The strong rebound in crude oil prices from a low this week of less than $100 per barrel is also lifting gold and other commodities.

 

The gold market is dealing with three major elements currently as are other markets: The Russian/Ukrainian war, rising global inflation and new rolling lockdowns in China due to Covid. Despite the presence of these three major issues, stocks have continued to climb higher and are now at nine-week highs. Encouraging peace talks between Russia and Ukraine may be a major factor in equity resilience, although it would be far too premature to suggest the war will be ending soon. Of course, the market’s ability to shrug off the conflict may only last for so long and any escalation in hostilities may eventually put a major dent into stocks and risk assets.

 

Gold has been largely affected by outside market action and that is likely to continue in the months ahead. Crude oil has climbed back above the $100 per barrel mark and is sitting at about $106 per barrel today. OPEC is set to meet tomorrow to discuss production from May forward and the meeting could be market moving. Any major changes in production quotes could set oil prices on a course higher. A large increase in production could also be implemented, possibly dragging oil prices lower. Whatever the cartel decides to do, oil prices could see heightened volatility in the days ahead. That volatility could also spread to other commodity markets and could even affect the gold market.

 

The dollar has also been a major player in gold’s price action. The dollar is weaker today, however, and could see further selling if recent lows are broken. The dollar had been trending higher for some time but has seemingly run out of gas. Any further dollar weakness may give gold a boost as it makes the metal relatively less expensive for foreign buyers.

 

Rising yields have also been the topic of much discussion in recent months. The benchmark 10-year Note is currently fetching a yield of 2.38%. Yesterday, the yields of 2 and 10-year treasuries inverted, albeit briefly, in what many believe is a sign of a coming recession. Yield spreads will continue to be closely monitored, and any inversions in the curve may fuel a degree of investor panic as recession fears intensify.

 

The gold bulls are still in control on the daily chart. That control has come under some significant challenge in recent days, however, and the bulls appear to be hanging on by a thread. Last week’s highs around $1967 remain the next target for the bulls, while the bears will look to produce a close below the $1850 level. Until one of these areas is breached, the market remains in what may be viewed as no man’s land.

Down But Far From Out

/in , /by

The gold market has had a tough day. Prices for gold fell by over $25 per ounce at the lows of the session as investor appetite for risk is higher today. Lower crude oil prices and higher yields are not doing the metal any favors, either. The bulls have stepped in to buy the earlier dip, however, and while prices are still lower on the day they are now well off the session lows established earlier in the day.

 

A lack of any major developments in the Russian/Ukrainian war is likely having a bearish impact on the yellow metal. Profit taking and weak long liquidation in gold futures also played a role in today’s decline. On a slightly bullish note, however, the market did see some buyers enter on the dip, taking spot prices back up and now standing down less than $5 per ounce on the day.

 

There have reportedly been some encouraging talks between Russian and Ukrainian authorities that could eventually lead to a ceasefire. Hopes for a ceasefire are fueling some appetite for risk today, as stock indexes are higher at mid-day. Gold futures hit a five-week low earlier in the session today and the bulls’ control of the daily chart is fading fast. The metal is now in a multi-week downtrend on the daily timeframe. The bulls will now target last week’s highs around $1967 while the bears will seek a decline under $1850.

 

Barring any new developments in the war, the markets will focus their attention on inflation and monetary policy. The Fed raised the Fed Funds rate by 25-basis points last week, and is now expected to hike another six times over the course of the year. While multiple rate hikes are now no surprise, investors will ponder whether the Fed elects to hike rates by 50-basis points. A 50-point rate hike would be the first in two decades and could send a clear signal to markets that the central bank is looking to get inflation under control. Of course, the market issues presented by Covid are not gone and could even be headed into worse territory yet again. China has recently implemented rolling blackouts in some areas, with the major city of Shanghai being one of them. These blackouts have stalled some commodity prices as demand may suffer, and the issue may do nothing for inflation but to make it possibly worse.

 

The gold market will pay close attention to these issues and could react significantly to any unexpected changes. The market remains stuck in no man’s land currently, and until prices breakout to the upside or breakdown, investors may be more content sitting on the sidelines. A large number of investors taking a wait and see approach could, however, ignite the market’s engines if or when it makes a move above resistance or below support. For the time being, the market remains in “buy the dips” mode until proven otherwise and any major sell-offs should be viewed with a high degree of skepticism.

Rising Yields, Weaker Crude Sink Gold

/in , /by

The gold market is getting the week started off on the wrong foot as prices are moderately weaker at lunchtime Monday. Spot gold is down over $20 per ounce around $1937 as higher bond yields and sharply weaker oil prices take a toll. Today’s declines may also simply be due to a pullback within an uptrend and some back and fill price action on the chart. Whatever the case may be, the yellow metal is weaker today and could be seeing some effects from an increasingly hawkish policy stance by the Fed. The central bank is now expected to raise rates at its May meeting by 50-basis points rather than 25. Another 50-point hike could follow the first in May, possibly allowing the Fed to get a hold on rampant inflation.

 

In addition to worries over a hawkish Fed and the ongoing war in Ukraine, markets may also be feeling some concerns over the rolling Chinese lockdowns due to Covid. The major city of Shanghai has now been placed in a rolling lockdown, and some companies have been forced to halt production in the area. The Chinese lockdowns could be a contributor to oil’s weakness today and may weigh on commodities across the board if not ended soon.

 

The benchmark 10-year Note is now fetching a yield of over 2.45%. Rising yields may become increasingly problematic in the months ahead. Some parts of the yield curve have already inverted, suggesting that a recession could be approaching in the U.S. Worries over slowing economic growth and the potential for a full-blown recession are likely to increase significantly in the months ahead as the Fed battles inflation with higher interest rates. The central bank’s hawkishness could fuel market volatility and some major sell-offs even without a recession. Investors are likely to view tightening monetary policy as a precursor to a major economic slowdown, and as such, may elect to jump ship from equities and risk assets earlier as opposed to later in the cycle. This could keep stocks in a “sell the rallies” type of environment and trending lower as the year progresses.

 

Gold may play an increasing role in the Russian/Ukrainian war. Since it annexed Crimea in 2014, Russia has tripled its gold holdings. While Western sanctions have frozen a large part of Russia’s reserves, gold is seemingly beyond the reach of sanctions-at least for now-and may be used to keep money flowing in Russia. The U.S. and other nations are looking to close this loophole, however, and the Treasury Department has said that anyone transacting gold held by the Russian Central Bank could face penalties.

 

The bulls remain in control of the daily chart. The $2000 level remains the next logical target on the upside. The bears will seek a further decline to produce a close below the $1900 level. Price action in between these levels may just be noise. A legitimate breakout to the upside could be seen soon, however, barring any major news events or policy changes.

Corrective Pullback As Expected

/in , /by

The gold market is lower today in mid-morning action as longs book some profits following recent strong gains. Despite being down by over $10 per ounce earlier in the session, the gold market is now down just $3 per ounce. Some bargain hunting and risk buying ahead of the weekend are not unexpected, and the market could even find its way into the green before the day session concludes because of this. Prices are down, although they are holding above the $1950 area in a good sign for the bulls.

 

Nothing much has changed throughout the trading week in recent days. The war in Ukraine rages on, unfortunately, and people are now left wondering what Putin may do or try next. The invasion of Ukraine by Russian troops has not gone according to plan, and the conflict could extend for a significant period of time if left as is. Of course, Putin could decide to use even deadlier weapons. Nuclear weapons, for example, would be a major escalation in the war that could bring other global forces into the conflict. Worries over nuclear issues have already begun to increase as Russian troops now hold  Chernobyl, site of the 1986 nuclear disaster. Power to the plant has reportedly been cut, restored and now cut again. It is unclear how long radiation may be contained with no power, although it has been said that there is currently plenty of water to keep the fuel cool and from overheating.

 

After meeting with NATO and EU leaders this week, it is reported that President Biden will announce a new pact with the European Commission to boost supplies of liquified petroleum gas. This move could mean that a boycott of Russian energy products has been decided on or may be in the plans ahead. Biden has also called for the removal of Russia from the G-20 group of nations.

 

The lack of an easy victory in Ukraine combined with the slaughter of innocent civilians may have humiliated Putin on the world stage. This could make him more dangerous than ever, and no one knows for sure what his next steps may be. The uncertainty surrounding Russia and Ukraine may keep risk appetite depressed for some time and could keep demand for perceived safe havens such as gold robust in the months ahead. This, along with the rampant inflation being seen across the globe, could keep the gold market on the offensive. The yellow metal is approaching the $2000 level, an area viewed by some analysts as key resistance. If the gold market is able to produce a close above this level, more buyers could be drawn into the market and prices could potentially skyrocket.

 

The bears will keep looking for a decline to produce a close first below the $1900 level and then $1850 before getting overly excited. Market action between $1900 and $2000 may simply be noise and nothing of substance. A breakdown or breakout above or below these levels could, however, be indicative of the market’s underlying intentions.

Gold Higher As Crude Climbs

/in , /by

The gold market is on the offensive today as crude oil prices continue their recent ascent. Crude prices are up by nearly $5 per barrel in late morning trade as the notion of a boycott of Russian oil takes hold. Stocks are solidly lower on the day thus far as risk aversion remains robust. Although the war in Ukraine has continued, nothing much of substance has come to light lately. President Biden will be meeting with NATO leaders and allies tomorrow to discuss the invasion and possibly even additional actions against Russia.

 

The Russian/Ukrainian war is certainly a source of market anxiety. In addition to the war, however, investors are also left fearing rampant inflation that has seen prices skyrocket in recent months. Not only might the Fed be forced to battle inflation through monetary ;policy decisions, but those decisions could have negative effects of their own. The 2-year and 10-year yield curve is close to inverting already. An inverted yield curve could point to a looming recession. Without question, if the Fed acts more aggressively towards policy than previously thought, the economy will feel the not-so-subtle effects. This slowdown could in turn lead to sharply lower equity markets and selling across risk assets that could change market dynamics for years to come.

 

The Fed recently raised the Fed Funds rate by 25-basis points in a move that was widely expected. Without the war in Ukraine, the central bank may have been more aggressive and could have raised rates by 50-basis points. Fed Chairman Jerome Powell this week left the door open to larger rate hikes or more of them. His commentary would seem to suggest that a 50-point hike could be seen in the next month or two and that markets should not be taken by surprise by such a move.

 

Since reaching new all-time highs earlier this month, the gold market has been on the defensive as prices sank by well over $100 per ounce in just a couple weeks time. Price action around current levels may be viewed as noise, however, as the bulls and bears are fairly far from any targets of consequence. The bulls would like to produce a close above resistance at the $2000 level. The bears would like to see a close below the $1900 level and then $1850. Prices in between these areas may not mean much. Time will tell which way the market goes. Prices could very well spend several weeks or longer in this range, however, as investors await further inputs on both the war as well as monetary policy before placing any big bets. The formation of a bearish pennant pattern on the daily chart will not help the bulls, and could even lead to rising selling pressure that could see the bears test the $1900 level before abating. Market volatility is likely to remain high as the war rages on and before more is known about the Fed’s outlook and plans.

Bears Trying Hard

/in , /by

The gold market is lower in early action today as recent commentary from Fed Chairman Jerome Powell is being viewed as more hawkish than anticipated. Rising treasury yields today are being blamed for gold’s poor performance in the aftermath of Powell’s hawkish comments yesterday. Powell suggested yesterday that the Fed could consider hiking rates by 50-basis points rather than 25. He also implied that the fight against inflation is important enough to slow down the economy through higher rates or other actions.

 

An increasingly hawkish Fed is not only surprising but also has many wondering if the central bank will actually follow through. Talk is one thing, action is another. It remains unclear just how aggressive the Fed may become in its policy and whether it is simply “talking the talk” to appease investors right now. If the Fed does not act aggressively, however, inflation could become even more out of control in the months ahead. Price pressures certainly appear as if they are here to stay, and regardless of what the Fed does or does not do, it could take significant time for those pressures to be alleviated.

 

Outside markets are moving today as well, crude oil is a bit weaker today after a recent sharp rise. The oil market has been on the offensive lately as the EU could be getting closer to banning imports of Russian energy. The dollar is firmer today as well while yields on the Ten Year Note are up to over 2.35%. With the war in Ukraine not seeing much change in recent days, risk appetite remains somewhat depressed.

 

The gold bulls are still in control on the daily chart. That control is becoming increasingly fragile, however, as the selling has not stopped much since the metal reached new all-time highs earlier in the month. Spot gold prices are down over $20 per ounce in mid-morning action today and are getting closer and closer to testing the $1900 level on the downside. The formation of a bearish pennant on the daily chart is not helping the bulls any and could lead to further downside pressure. The bulls will look to take proces higher again to produce a close above resistance at the $2000 level. The bears are looking for a decline to produce a close below the $1900 level and then below the $1850 area. Closes above or below these key levels could signal further movement in that direction and may attract additional traders and momentum players from the sidelines.

 

Recent CFTC data showed hedge funds reduced their bullish gold bets. Despite this reduction, the metal is still being viewed as highly attractive given the current geopolitical scene as a safe haven. Gold’s safe haven appeal is not likely to dry up much further anytime soon. The metal has outperformed Bitcoin and cryptos and remains the largest store of value for investors looking to protect their wealth. Safe haven appeal could easily drive gold back to all-time highs or beyond and could be accelerated at any time with fresh developments out of Ukraine or other economic or political influences.

Bulls Buy The Dip

/in , /by

The gold market is higher in early afternoon trade as the earlier dip was scooped up by bargain-hunting bulls. Spot prices are up over $10 per ounce following the conclusion of the day session as a combination of bargain hunting and short covering takes effect. The gold and other markets continue to monitor the ongoing Russian/Ukrainian war. The war has apparently taken a turn for the worse as Russia reportedly used a hyper-sonic missile over the weekend in an attack on a Ukrainian city. The conflict could potentially see increasing casualties at this point as markets still consider the possibility of nuclear weapons being utilized.

 

U.S. President Biden is set to meet this Thursday with NATO and EU leaders to discuss the Russian invasion of Ukraine. The Biden administration has said it will reaffirm its commitment to NATO and its allies.

 

Outside markets are in a bullish posture for gold today. Crude oil prices are higher, hitting over $110 per barrel. The dollar is weaker on the day while yields are pushing slightly higher. The continuing rise in treasury yields is likely due to increasing inflation worries. The yield of the benchmark 10-Year Note may rise further as the Fed lags behind the inflation curve. Following the first 25-basis point rate hike last week, markets are now wondering how aggressive the Fed may get in order to battle price pressures. Many now believe the Fed will be forced to raise rates seven times total this year. The Fed also left the door open to larger rate hikes, which could mean at some point the central bank elects to hike rates by 50 rather than 25-basis points. The shock and awe from such a move may eventually fuel a decline in inflation but comes at a price. Stocks and risk assets may continue to trend lower during the tightening cycle and a large-scale sell-off could be seen.

 

Fed Chairman Jerome Powell said today that the Fed could also decide to raise rates at a faster pace if inflation does not begin to abate. The expectations for this year, which were previously for inflation to peak in the first quarter and then level off, have already fallen apart. The hopes for a large decline in prices in the second half of the year has completely fallen apart, and as such the Fed could become a lot more aggressive with policy than previously thought.

 

The next several weeks could see the bulls attempting to fight off a correction. The market has already begun correcting since reaching new all-time highs earlier this month and the bears may battle to see further momentum in the weeks ahead. The weekly chart may be indicative of a top being reached. The bulls will look to take prices back above the $2000 on a closing basis. The bears will look for a close first below the $1900 level and then the $1850 area. A close below these levels could boost the bearish narrative and provide further downside momentum.

Gold Rebounds On Bargain Hunting And Short Covering

/in , /by

Following consecutive days of losses, the gold market saw a sharp rebound today. Spot prices rose by some $12.90 in mid-afternoon trade. As inflation continues its ascent to the highest level in some four decades, investors are increasingly looking for hedges against rising prices. The primary attraction appears thus far to be gold.

 

As recently as last year, many expected Bitcoin and other cryptocurrencies to replace gold as a hedge against inflation. That has not happened, so far, however, as gold has outperformed Bitcoin recently by a wide margin. With so much volatility entering a wide variety of markets currently, the last thing investors may want or need is even more swings trying to hold a long position in cryptocurrency.

 

The Federal Reserve raised interest rates by 25-basis points yesterday in the first rate hike since 2018. The central bank suggested that several more hikes will be seen, with as many as seven taking place in 2022. Whether an increasingly aggressive Fed has enough ammunition is another question, and whether it will or will not use such ammunition is another as well. The path for higher gold appears to be set, however, regardless of how many times the Fed elects to tighten.

 

Inflation has been a problem for months now and appears to be here to stay. The latest reading on consumer prices showed a rise of 7.9% for February. That figure has some analysts thinking we will see inflation at double-digits this month. While a rise of 7.9% is certainly scary, a double-digit rise could really send fear into the marketplace. This fear could cause a further swelling of commodity prices across the board.

 

Outside markets are giving gold a hand today. Crude oil prices are sharply higher as they attempt to distance themselves from the $100 level on the upside. The dollar is sharply lower today, also providing fuel for gold bulls.

 

The gold bulls are still in control on the daily chart. That control has come under serious scrutiny in recent sessions, however, as gold tumbled immediately following its rise to fresh all-time highs. A top could have been reached in the near-term, and the bulls have their work cut out for them in order to make new all-time highs. The next target for the bulls on the upside is producing a close above the $2000 level. If that area is breached, it may encourage many more bulls to jump onto the bandwagon and could provide the gold market with the fuel needed to make a sustainable jump higher. The bears will look for a decline below $1900 on a closing basis and then the $1850 level.

 

It may take some time for the market to complete its back and fill trade on the chart. Price action between $1900 and $2000 in the meantime may be viewed as nothing but noise. With the ongoing war in Ukraine, the market could be susceptible to a rapid move higher or lower depending on what occurs in the weeks ahead.

Fed A Non-Event?

/in , /by

The conclusion of the latest FOMC policy meeting has now come and gone. As expected, the central bank raised its Fed Funds rate by 25-basis points in what may be viewed as the opening salvo for rate hikes this year. The Fed alluded to possibly hiking rates as many as seven times this year in order to combat rising inflation. The Fed’s statement also cited the ongoing war in Ukraine as a source of higher inflation and traders are now awaiting the press conference to begin with Fed Chairman Jerome Powell.

 

Stocks are moderately higher following the Fed statement, although they could come under pressure during the press conference today. Today’s reaction to the Fed’s rate hike has been a non-event for the most part. Markets have shown little reaction to the rate hike amid ongoing worries over the Russian/Ukraine war and accelerating inflation. Investor risk appetite is also getting a boost today from reports suggesting that both Ukraine and Russia feel progress is being made in their talks about stopping the war. Of course, time will tell if anything actually comes to fruition. In the meantime, however, the shelling continues.

 

Chinese officials overnight said they desire further market transparency and want to keep markets running smoothly. These comments fueled a rally in Asian equity markets as China has recently implemented lockdowns related to the spread of Covid-19. The lockdowns have affected global markets, as they may temper demand expectations for certain areas within the globe’s second-largest economy. Chinese lockdowns could, in fact, be playing a role in weaker crude oil and commodity prices.

 

All things being equal, today’s Fed announcement has not had much effect on markets at all. The central bank did hint at an aggressive turn in its policy stance, however, when it suggested it may need to hike rates seven times this year. With the Fed’s shift in policy expectations came new forecasts for inflation  and GDP. Despite an increasingly aggressive Fed, inflation is likely to remain at 4.1% throughout the year. GDP growth has been trimmed from a 4% forecast to just 2.8%. A Fed statement also suggested the Fed would begin trimming its $9 trillion balance sheet “at a coming meeting.” This issue may be addressed further by Powell during the press conference this afternoon.

 

For the gold bulls, the upside initial target remains the same. The bulls would like to see a close above the $200 level before getting overly excited. The bears are looking for a further decline and a close below the $1900 level as a starting point. A close below this level could attract further sellers while forcing longs to exit the market, possibly exacerbating the selling in the process. The market may not fall too far, however, despite a more aggressive Fed policy stance. The ongoing war and battle against inflation may both keep the yellow metal afloat and could be a primary catalyst for a rally to new all-time highs in the weeks and months ahead.