The gold market is lower again today as the bears see some momentum building. While gold is well above the lows of the session, spot prices are still down sharply. Gold is lower on the day by over $21 per ounce currently after being lower by well over $30 per ounce earlier in the session. A significant decline in the price of crude oil as well as a deteriorating chart posture are both bearish elements for the market today. As discussed in previous posts, it seems as if maximum anxiety has already been reached regarding the war in Ukraine.

The Russian/Ukraine war continues to rage on. Continuing talks between Russia and Ukraine may be bearing some fruit, however. Talks between the U.S. and China yesterday were also said to be constructive. A sudden ceasefire or relaxation of tensions across the globe could move markets substantially. Any clues as to a ceasefire approaching could reverse recent trends which saw stocks declining and gold rising.

Against the current geopolitical backdrop, investors are also preparing for the conclusion of the latest Fed meeting taking place today and ending tomorrow. It is widely expected that the central bank will raise the Fed Funds rate by 25-basis points in what will almost certainly be an opening salvo for higher interest rates. The Fed is expected to hike rates several more times in 2022. While the Fed has penciled in three more rate hikes for the year, many believe the Fed will be forced to hike rates five or more times in order to get a handle on inflation. This leaves the Fed in a perplexing situation. The more it hikes rates, the greater the risk of a recession. The central bank will have to choose, therefore, between rampant runaway inflation or a sharply slower economy.

All signs currently point to the Fed accepting an economic slowdown or even recession. The central bank appears to have backed itself into a corner from which there is no painless escape, and getting itself free from this corner may take considerable time and effort. The steps involved are also likely to be painful. Stocks do not like higher rates and equity markets could, therefore, continue their recent descent. Rising volatility may also be seen across risk assets. That volatility could, however, see more capital flowing into the gold market as investors seek out its perceived safety.

In the meantime, the gold market may be vulnerable to further developments in Eastern Europe as well as any new information on the inflation front. Despite gold’s decline of nearly $100 per ounce in recent days, the market is still controlled by the bulls on the daily timeframe. Bullish control of the market is fading quickly, however, and if the bulls do not step in to buy soon, the bears could wrestle control on the daily chart away from them. $2000 on the upside is the next target for the bulls, while the bears will look for a close below support at $1900 on the downside.

Despite some seemingly bullish data released this morning, the gold market remains on the defensive following yesterday’s large sell-off. Spot prices are getting hit again today, declining by over $20 per ounce. Gold is well below the $2000 level at this time, and if the bulls do not step up soon could see further chart damage inflicted. It is important to keep in mind, however, that the market is due for some back and fill price action following the recent run higher. Given this, we would expect prices to find some footing fairly soon given the bullish outlook for gold.

The latest reading of consumer sentiment by the University of Michigan declined, and missed expectations by a mile. The reading of 59.7 was not even close to expectations for a reading of 61.4, and also represented a steep decline from the previous month’s reading of 62.8. Of course, the war in Ukraine may have a lot to do with this decline, but other issues also remain that may present problems for markets in the months ahead. Outside of the war, inflation remains a stubbornly persistent problem that is now hurting American consumers. The bite of gasoline at over $4.00 per gallon on average may continue to weigh on consumers, forcing them to cut back on spending. Any spending cutbacks could trickle into other key areas of the economy, and could even put the economy into recession if serious enough.

The Federal Reserve will almost certainly begin hiking interest rates next week with an initial 25-basis point hike to the Fed Funds Rate. This hike will likely be the first of many to be seen over the course of the year. The Fed has penciled in three rate hikes for 2022, but many analysts believe the central bank will be forced to hike rates four, five or even more times to get prices under control.  The threat of increasingly aggressive Fed action may keep stock investors under wraps and could even lead to a major trend change for equity markets and possibly a large-scale sell-off. Stocks have already seen a heavy increase in volatility in recent weeks and that volatility may be here to stay as long as the war in Eastern Europe continues. The Fed may have to factor in the war at some point when guiding policy, although for the time being it does not appear it would affect any change.

Some indications are pointing to the possible passing of key anxiety levels within markets. Treasury yields have been on the rise this week, while the price of crude oil has backed off sharply from recent 14-year highs seen. If worries over the war have in fact peaked at this point, investors will likely turn their attention to rising inflation. Expectations for inflation over the long-term have now risen as well, with the report also showing investors expect a rise of 5.4% over the next year. That is a strong rise from previous estimates of a 4.9% rise, and is the highest level in some 40 years.

The gold market hit a new all-time high today as risk aversion remains strong. News of a ban on Russian oil imports is playing a role today and the price of crude is higher by several percent. Higher prices for crude play into the ongoing inflation narrative, and stronger values for oil could translate into further gains for commodity prices across the board. Worries over global inflation combined with the ongoing Russian/Ukraine war are enough to drive investors into the perceived safety of gold. The market could now see itself off to the races, as there is no chart resistance ahead for higher prices.

Gold rising by over $80 per ounce today is impressive. We believe, however, that today’s price action was only a matter of time. What will be even more impressive, in our view, is when gold continues to trend higher and deeper into new all-time high territory. Some analysts have suggested today that $3000 per ounce gold is likely to be seen next. Such a move could happen, and happen quickly. Ongoing worries over inflation along with a deteriorating geopolitical scene could make gold the go-to asset class of the year. Investors appear to be viewing gold as an inflation, geopolitical and economic hedge, and that may keep buyers flooding into the market especially if recent strength is  maintained.

A de-escalation in Ukraine could have a major bearish impact on the price of gold, however, such an impact would likely be only for a short time. While the war in Ukraine is certainly adding to gold’s allure right now, the yellow metal is also moving higher due to inflation, lower stocks and other potential risks. A ceasefire in Ukraine could cause a short-term decline in the price of gold. Such a decline could be aggressively bought, however, as investors look to get on the rally train and participate in any further upside the metal may see.

As the U.S. and U.K. ban Russian oil, the price of crude stands to rise substantially further. Oil today is up over $3.50 per barrel, and in earlier action the crude market saw prices rise to nearly $130 per barrel. Russia has suggested that a rejection of their crude oil could play havoc on global markets and that the price of crude could soar to $300 per barrel or higher. While crude is nowhere near $300 per barrel as of yet, time will tell if the market does keep moving higher as demand remains robust among dwindling supplies. Either way, elevated crude oil prices may keep many commodities elevated and that will in turn keep inflation up for some time to come.

As Russian sanctions continue to take a toll, central bank buying in gold could see a lift this year. Due to the typical volumes involved, any central bank activity may keep the price of gold on the ascent and could keep individual investors motivated to buy as well.

The gold market had gotten the day off to a strong start, rising by several dollars per ounce. That initial strength quickly dissipated, however, once markets got the latest weekly jobless claims data. The weekly claims saw a moderate decline, and the decline of about 18,000 jobs put weekly claims below consensus estimates. Continuing jobless claims are now at a level not seen since 1970 in what may be viewed as a sign of economic strength. While the data took the wind out of gold’s sails in early action, the yellow metal has not fallen too far. In fact, any dips in gold are likely to be bought at this point, as the ongoing war in Ukraine and against inflation rage on.

Fed Chairman Jerome Powell will testify again today before lawmakers. Yesterday, Powell signaled that a 25-basis point rate hike was on the way and would be seen next month. While things can change, this likely puts an end to any debate over whether the Fed could hike rates by 50-basis points.

The war in Ukraine continues to have a significant market impact. Crude oil prices hit over $116 per barrel overnight, the highest level in over a dozen years. The dollar is also stronger today while the benchmark Ten-Year Note is seeing a yield of 1.854%. Market action points to ongoing uncertainty and traders as well as investors appear content playing it that way. Stocks are mixed in early action today as the VIX eases just slightly in early action. The gauge still reads over 30, however, and could have a lot of room to rise further if things deteriorate in Ukraine.

As the price of crude oil rises, the threat of an oil shock may also be on the rise. Traders and investors have thus far avoided Russian energy products in an effort to steer clear from any possible sanctions related troubles. In addition to this, OPEC has not signaled it would raise its quota-at least as of yet-and talks with Iran remain unresolved. The combination points to a troubling possibility of an oil shock. Tightening supplies may keep prices on the offensive in the weeks ahead. A major or sudden shortage, however, could fuel a price spike capable of crippling the economy. The threat of an oil shock comes at a very bad time, as people are already having to battle higher prices as inflation soars to levels not seen in decades.

The gold bulls will look to take prices beyond the February highs in the $1976 area. The bears will look for a decline below support at the $1850 level and then again at $1800. A move in either direction could be sustained and could see the market take off higher or lower. Of course, we feel right now that there are far more reasons for higher gold than lower, and as such will keep our eyes open for opportunities on the long side. Any dips seen in gold should be bought, barring a close below the levels mentioned above.