The gold market is once again ewing some pressure today as rising bond yields and a stronger dollar take a toll. The gold bears have taken process below support at the $1850 area, making a challenge of the $1800 level a distinct possibility in the days ahead. Should the market break down below the $1800 area, it could set the stage for a fresh and significant leg lower in price that could see the market reach as low as $1700 before finding some solid buying interest. If the bulls are able to reverse the current trend, however, the market could see a sharp rise to $1900 or even beyond as shorts are forced to cover.

 

As traders and investors return from the long Memorial Day Holiday weekend, they appear ready to pick up where they left off last week. That means lower stocks, lower gold and rising yields. The trend of higher yields and dollar strength may continue to weigh on the yellow metal in the months ahead unless something changes. The Fed has suggested strongly that it will stay the course and keep taking rates higher to battle inflation. Should the Fed decide to “pause” or reverse course, it could potentially lead to a major reversal in yields and the dollar and could send gold skyrocketing higher. Even if the Fed does take rates sharply higher from current levels, real interest rates would still be very low and those rate hikes may not have a major impact on gold. The bottom line is this: Gold may stand to benefit regardless of what the Fed does or does not do in the months ahead.

 

As if inflation and the Fed were not enough for markets to worry about, Covid lockdowns in China have also played a large role. Those lockdowns may finally be easing, however, and if so, it could help loosen up global supply chains and inflation. The world’s second-largest economy posted some encouraging economic data recently. Its official Purchasing Managers Index saw a rise for May to 49.6. Although still under the key 50 level, the reading is a big improvement from the 47.4 reading registered in April. China could be a major influence on the global economy in the year ahead. Any other Covid-related issues such as lockdowns could have devastating effects on global growth.

 

U.S. President Biden will be speaking today with Fed Chairman Jerome Powell about the inflation problem. What those discussions may uncover is unknown, although it is possible that Biden may be looking for more assistance from the Fed and ideas on how to squash inflation sooner rather than later. Regardless of what the Fed or the government does, price pressures are likely to remain for some time to come. That, along with the current geopolitical scene and risk of recession may keep demand for gold robust in the months ahead.

 

The gold market is struggling again on Wednesday as the bulls appear quick to bale on positions. A rebound today for both the dollar and treasury yields are likely the main issues affecting gold’s decline today. The selling in gold today comes as investors await the latest FOMC meeting minutes due for release this afternoon.

 

Today’s meeting minutes could provide markets with important clues about the Fed’s plans and outlook on inflation. Investors will pay close attention to the minutes for clues regarding the central bank’s plans for raising rates further, including the amount and pace of further rate hikes. The Fed has previously suggested that it will use all of the tools in its arsenal to get inflation under control. It further suggested that it would not stop until price pressures were brought under control. The Fed has seemingly made the choice between combating inflation and allowing equity markets to run higher. As the Fed battles inflation through rate hikes or other methods, stocks and risk assets could see ongoing volatility and selling.

 

The Fed is, despite recent action, well behind the inflation curve. The central bank would need to hike rates and hike them aggressively, now, to be able to get rates to neutral. Until the Fed takes such action, inflation is quite likely to remain out of control. The question for investors now may be whether the Fed has the guts to stick it out. Although the Fed has stated that it will raise rates as high as necessary and do what needs to be done to meet its objective, doubts remain. The Fed could become increasingly influenced by lower stock markets and politicians. The lower equity markets go, the more complaining the Fed is likely to hear. If the Fed were to reverse course or stop hiking interest rates, the results could be disastrous. The economy is already on its way into a period of stagflation, and a full-blown recession is a legitimate risk. One wrong move from the Fed could put the economy into a very bad place and the Fed is not known for always doing the right thing. This possibility may keep stock investors leaving while looking to put capital to work elsewhere.

 

The gold bears are still in control on the daily chart. The bulls have been ankle to hold the $1850 for a bit now, however, and that may be viewed as a positive. The bears will continue to look to produce a close below the $1800 level. The bulls are looking to maintain trade above $1850 and to produce a close above the $1900 level. Until they are able to do so, the bull camp is unlikely to get overly excited and the market may remain vulnerable to another round of selling. If the bulls are able to take prices higher, it could prove that the recent downside has been nothing more than a minor correction within a larger trend higher. In this case, the bulls may be able to challenge and overtake previous all-time highs rather quickly.

The gold market is seeing some upside today as the bulls look to distance the market from the $1800 level. The metal is moving higher today as risk appetite remains poor and as the dollar hits a four-week low. Crude oil prices may also be a contributing factor today as the price of oil rises while yields are fetching 2.815%. The bears may tire out rapidly at this rate and a short covering rally could be seen. Such a rally could easily take the price of gold beyond resistance at $1850 and could even drive the market to test resistance around the $1900 level.

 

Stocks have been against the ropes in recent weeks, although that may be difficult to see today. In early morning action, the benchmark Dow Jones Industrial Average is higher by over 500 points. Although today’s rally in equities may look impressive, it could prove to be nothing more than a relief rally in a larger downtrend. Stocks have been trending lower for some time now, and recently hit a 12-month low on the charts. With so many major issues weighing down risk appetite, including inflation, an aggressive Fed and the war in Ukraine, it is difficult to imagine a scenario in which the trend in stocks reverses course. Any downside pressure on equity markets may keep capital flowing into gold and precious metals, and the yellow metal may not see much more downside if inflows are robust.

 

Whether gold can sustain its upside today is another question. The metal has been hit hard in recent weeks by a stronger dollar, aggressive Fed and other factors that may make it less appealing to investors. The rising dollar has been a major factor for gold’s lack of upside, and as long as the currency is rising it is challenging to see a situation in which gold does the same. The dollar may finally be running out of gas, however, as numerous challenges remain for the currency regardless of how high the Fed may raise interest rates. Should the currency begin to trend lower and reverse course, it could set the stage for a significant rally in gold that could see the market retake key overhead resistance or beyond.

 

The bears are still in control on the daily chart. That control has been eroded a bit today, however, and if the bulls are able to muster further gains throughout the week, the trend may even be negated. The bulls need to first produce a close above $1850 and then take the $1900 level on a closing basis. The bears will target a close below $1800 and then the May lows at the $1785 level. Should these levels be taken above or below, it could set the trend for the metal for months to come. If the market is able to move higher this week and sustain those gains, it could again point to the bulls willingness to buy any significant dips and the technical edge may then belong to the bulls.

The gold market recently completed its best daily gain in some time as the dollar lost ground and as yields slumped a bit as well. Also working to the metal’s advantage today is weakness in equity markets. Stock markets have been in a downtrend now for weeks, but the worst may be yet to come. There is an increasing amount of concern now over corporate earnings which had, for some time, buoyed equities. Dismal results this past week from Target and Walmart could be indicative of more tough calls to come. As Covid lockdowns continue in China and as the war in Ukraine rages on, there may be little left to offer some respite from selling pressure in equities.

 

Stocks are now near 12-month lows and could potentially be headed even lower. Both Target and Walmart blamed their poor results on inflation this past week, and if that is the case, there may be plenty of additional disappointments ahead. The term “recession” is being tossed around quite a bit today as investors become increasingly concerned over the possibility of a full-blown U.S. recession. Time will tell, but the chances of a recession definitely seem to be on the rise. Not only could corporate earnings take a hit due to inflation and other factors, but the Fed will, at the same time, be looking to hike rates aggressively to combat price pressures. The combination of higher interest rates and inflation could slow the economy to a standstill and could put growth into negative territory.

 

Outside markets are helping gold today as crude oil rises to trade around $110 per barrel. The Dollar Index hit a two-week low today while yields for the ten-year are near 2.84%. Yields have come off in recent days after trading firmly above the 3% level although it is unclear if any further declines may be seen.

 

Today’s rally in gold put some distance between the market price and key support at $1800. Now trading around $1840, the bulls have prior support at $1850 within their sights and could look to challenge this key area in the days ahead. If the bulls are able to produce a close above this level, they may then target the $1900 area as the next jump. The bears will not go easily, however, and will still look to produce a close below key support at $1800. If the bears fail and $1850 is overtaken to the upside, a short covering-rally could ensue that may assist the bulls in taking price back to $1900 or beyond. For the time being, the bears remain in control on the daily chart.

 

The gold market could remain mostly sideways for the next few months as markets await more action from the Fed. Now expected to raise rates by 50-basis points at its next two meetings, the central bank could surprise markets with any additional action or a lack thereof. After fighting to maintain its credibility, however, it seems as if the Fed will in fact follow through on its pledge to fight inflation and use any and all tools at its disposal to do so.

As the financial world takes a more serious tone and as volatility continues to spike, an increasing number of investors may be looking to alternative places to put cash to work. While many of the usual names come to mind quickly such as gold, Bitcoin, and other cryptos, there may be an even safer place to put capital to work. Real interest rates, if they continue to rise, could become an increasingly important source of competition for gold and cryptos.

 

The gold market has recently found support at the $1800 level and the bears have, thus far, been unable to breach this key level on a closing basis. While this level may hold, for now anyway, it could come under increased attack in the months ahead as the Fed looks to raise interest rates aggressively. Although there have been some signs of a peak in inflation, the core rate of inflation is very likely to remain elevated through the course of the year. This elevated inflation could create a challenging environment for both the economy and markets and leave investors searching for asset classes that may protect their purchasing power.

 

Although the entire curve is not in positive territory, real yields could see a decent climb as the Fed looks to potentially raise rates to the 3% level in the months ahead. As nominal rates rise, real yields will also rise. As real yields climb, investors looking for perceived safe-haven assets could simply put money into a bond that would provide a good risk/reward scenario. The last few years have seen gold benefit due to negative real interest rates. As rates climb out of the gutter, however, they may pose a powerful threat to gold, Bitcoin, and other assets typically bought as safe-havens.

 

Of course, the Fed could change its mind or even reverse course completely. After saying for some time that inflation was only transitory, however, the Fed changing course is very unlikely. The central bank may, this time around, actually stick to what it has been saying for months now. If the Fed looks to get inflation under control, it will need to raise rates aggressively and the 3% level may not even be high enough. The Fed’s last meeting saw it hike rates by 50-basis points. That same move is likely to be seen at the next two or three consecutive meetings as the Fed looks to show it means business.

 

The primary competitor for gold has been cryptocurrencies. These assets have been hammered as of late, however, and do not seemingly pose much, if any, threat to gold in the current environment.

 

The gold market remains stuck between two key levels-$1800 and $1900. Whichever level breaks first, on a closing basis, may determine the way gold moves for the months ahead. The longer the market stays sideways between these levels, the greater the eventual breakout or breakdown may be.