Gold Suffers Worst Week In Nearly A Year

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The past week has been one to forget for the gold bulls. The decline of some 4% this week markets the worst weekly close since June of last year. Gold prices have shed about $70 per ounce on the week, and more selling could be in store if the bulls do not stop the bleeding soon. Not only is the yellow metal being sold due to dollar strength and an increasingly aggressive Fed, but it also has to contend with recent technical damage inflicted that has taken the metal far below recent key support around the $1850 area. The technical breakdown may keep the bears encouraged and could lead to further selling before it has run its course.

 

The gold market may have also been victim to margin selling this week as equities were hammered. Gold is now in a consolidation stage and could test support at $1790 in the days ahead. A breakdown of $1790 could invite even more selling that could see the market decline towards the $1700 level. Traders may want to widen their volatility expectations, however, as markets across the board are likely to see continuing volatility due to the war in Ukraine, Chinese Covid lockdowns and other factors.

 

The days ahead may likely be primarily sideways for gold as it consolidates and possibly looks to recover. Any significant recovery, however, will need gold to retake the $1850 area on a closing basis. Given the market’s currently oversold status, gold could potentially see a rapid bounce higher, possibly even testing $1900 before petering out. Aggressive shorts may look to sell at a retest of $1900 and a significant battle between bulls and bears could be seen in that price area. For the time being, however, the bulls must work overtime to get the market stabilized.

 

Another factor in gold’s recent declines is the dollar. The currency has been stronger and recently hit a 20-year high. The dollar slipped a bit Friday but was still set to finish its sixth week of gains this week as worries over a slowdown persist. Higher interest rates and an aggressive Fed have stoked fears of a policy error that could not only put the U.S. into recession but could do so as inflation runs even hotter than recent weeks. Inflation data this week showed some signs inflation may be beginning to ebb, but any slowdown in price pressures is likely to be very slow. Concerns over inflation were likely to main factor behind the University of Michigan’s consumer sentiment survey falling to the lowest level since 2011. Worries over inflation, China lockdowns and Europe may keep inflows into the dollar going as investors seek out its perceived safety.

 

The necessary tightrope walking by the Fed will continue for months to come. As the central bank attempts to cool inflation while avoiding a recession, market volatility may see a further rise. This volatility may benefit gold in the end as investors seek out alternative asset classes.

 

Soaring Dollar Hammering Gold

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The gold market is down today and down sharply. A sharply higher dollar index is taking a big toll on the yellow metal today as the currency hits a 20-year high. Not only that, but deteriorating technicals have put the market into a “sell the rallies” mode that may see further selling of any upside while severely limiting gold’s ability to bounce back higher. Stocks are also getting kicked today as the benchmark Dow Jones Industrial Average is down nearly 500 points at mid-day.

 

Risk aversion within the markets remains elevated as the war in Ukraine shows no signs of slowing down any time soon. Not only that, but rampant inflation and Covid lockdowns in China are also adding stress to already-strained markets and supply chains. All three of these issues could put the U.S. and other nations into recession in the months ahead. The risk of recession is very high and could not come at a worse time. As the Fed looks to normalize monetary policy and inflation through aggressive tightening, any moves by the Fed may add additional pressure to markets and could cause investors to exit en masse. Markets could already be seeing a widespread exit by investors as the economy cools and an aggressive Fed may only exacerbate that problem.

 

The release of the Producer Price Index today will not do much to cool inflation concerns. PPI came in at a reading of up .5%, in line with expectations. The PPI reading may, in fact, lead some to believe that inflation has or is close to peaking. That notion is not, however, being reflected in market action thus far today. Gold is being hit hard, with spot prices down over $30 per ounce. The current price of gold is around $1823, well below key support at $1850. The bears will now look to put even more distance between prices and $1850. A breakdown and close below the $1800 could pave the way for the bears to take prices sharply lower and to do so quickly. The bulls will continue to fight, however, and a steep decline in the metal may not come easily. That being said, however, the bulls have a lot of work to do to get the market back into an offensive state of mind. The bulls must first produce a close above $1850 and then $1900 to get things going.

 

Today’s inflation data was close to expectations. One has to wonder, though, just how fast any declines could be seen in inflation if it has in fact peeked. The data does not suggest any let up in pipeline inflation pressures and therefore price pressures could spill over into CPI data for the next several months. As they do, the Federal Reserve may become increasingly aggressive and could hike rates even more than they have previously let on. An aggressive Fed does not necessarily mean weaker gold, however, and the yellow metal could even stage a sharp recovery from recent selling if the Federal Reserve gets inflation under control in the months ahead.

Gold Higher As Oil Stronger And Dollar Weaker

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The gold market is seeing a respite from the recent selling today as key outside markets give the bulls reason to buy. The metal may also be seeing some benefit today from another red-hot inflation report that could keep it supported over the long-term. The yellow metal remains vulnerable to changes in inflation, Covid lockdowns and the war in Ukraine. For the time being, however, the bulls are trying to retake key support at the $1850 level and if they produce a close above this key target they could gain further momentum for a run towards the $1900 area.

 

In what is likely the most important data report of the week, the Consumer Price Index for April saw a rise of 8.3% year-over-year. Although it is a tad lower than the March gain of 8.5%, the report still suggests that inflation is a major problem. The report falls into the camp of the policy hawks who want to see aggressive interest rate hikes from the Federal Reserve to get inflation under control. Rising price pressures are typically bullish for hard assets like gold and bearish for paper assets like stocks. Time will tell if that proves to be the case this time around, but either way much work remains to be done to get price pressures under a degree of control.

 

Outside market action today sees stronger crude oil trading near $105 per barrel. The Dollar Index is weaker today after hitting recent multi-decade highs. Yields on the Ten Year Note are fetching around 3% today. The ongoing war in Ukraine is still showing no signs of letting up. Both sides seemingly believe they can make progress on the battlefield, and that has led to little to no negotiating off of it. Until there are clear signs of progress being made towards a peaceful end to the conflict, investors may steer clear of stocks and risk assets and lean more towards perceived safe havens such as gold. Although equities are sharply higher today, that could be nothing more than a relief rally as equity markets have been trending lower for some weeks now. Today’s stock market rally could, in fact, be sold into heavily in the days ahead.

 

The gold and other markets will also continue to await further action from the Fed. The central bank has said it intends to use all of the necessary tools to combat inflation. The battle could have a significant and negative impact on stocks, however, and the Fed could come under pressure to slow the pace of hikes if stocks and risk assets come under even more pressure. For the time being, the technical traders and momentum players may dictate market action to a large degree, however, as the market remains in no man’s land on the charts.

 

The bulls will target a close above $1900 while the bears will look to take out key support at the $1800 level.

Gold Looking Weaker

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The gold market is seeing some moderate selling pressure on Tuesday despite seeing gains earlier in the session. Spot gold prices have now fallen below key support at $1850, and if they close below this level it could set the stage for further downside in the days ahead as more longs throw in the towel. The market may be reacting to several inputs today, including commentary from Fed officials on what is a busy day for commentary.

 

New York Federal Reserve President John Williams reportedly said earlier today that he feels inflation is likely to return to a level of 2% in 2024. Williams began his commentary at the NABE/Bundesbank International Economic Symposium in Germany by stating that the Fed has all of the tools necessary to battle inflation, and that while difficult, the situation is not insurmountable. Williams also said he expects the Federal Reserve to move expeditiously to bring interest rates back to more normal levels over the course of the year. His comments about interest rates come nearly a week after the Federal Reserve raised the Fed Funds Rate by 50-basis points for the first time since 2000.

 

Williams is not the only Fed official speaking today. Other Fed personnel will also be commenting on the economy and their outlooks today. In an effort to build more credibility for the U.S. Central Bank, these officials are likely to echo Williams’s remarks, stating they believe the central bank has all the necessary tools and will use them accordingly to bring inflation under control. Faith in the Fed has been sorely lacking, after all, and anything its members can do to boost morale may be seen. Unfortunately for the Fed, it waited too long before taking action and is now firmly behind the inflationary curve. Not only that, but other issues at play may also affect global markets.

 

The ongoing war in Ukraine shows no signs of abating any time soon. The conflict could keep supply chains jammed up for even longer than expected and could add to already-problematic inflation. If the West were to get involved, either in the air or on the ground, it could send shockwaves of risk aversion through global markets and could make the Fed’s job even more challenging.

 

While Ukraine and Russia fight a battle of ideals, China is fighting a battle against Covid. China has gone so far as to lockdown major cities such as Shanghai and Beijing in order to try to prevent the spread of the virus. The more cities that get locked down and the longer they remain so, the more economic activity will suffer for the globe’s second-largest economy. This could, in turn, have a negative impact on the global economy and could force central banks to rethink their planned pace of rate hikes.

The gold market may remain on the defensive for the time being. If the market closes below the $1850 level today, look for further selling pressure in the sessions ahead. If the metal does rebound and close above $1850, look for some buying to enter the market this week and try to take prices back towards the $1900 area.

Gold Firmer As Fed Remains Focus

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Spot gold prices are firmer in mid-morning action today as the latest jobs data did not disappoint. The non-farm payrolls data for April showed a rise of 428,000 jobs while the unemployment rate stood steady at 3.6%. This figure beat expectations for a rise of 400,000 and came just short of the March figure which was a rise of 431,000 jobs. Stocks are solidly lower today, with the benchmark Dow Jones Industrial Average down by over 250 points as of this writing.

 

Equity and risk asset weakness may be the key to higher gold prices. The stock market bears are showing their teeth again today following yesterday’s shellacking. There are now downtrends on the daily charts pointing to lower equities as the path of least resistance. The downtrend on the daily charts may support further selling as well as technical traders and momentum players look to ride any waves lower. As capital flows out of equity markets, much of it could potentially find its way into the precious metals space and into gold specifically.

 

Other outside markets are also giving gold a boost today. Crude oil is moving higher today, trading near $110.50 per barrel. The dollar, which has clearly been a major obstacle to higher gold, has come off of its 20-year high and is solidly lower today. Treasury yields remain elevated, however, as the 10-Year Note is currently fetching over 3.07%.

 

As the markets try to make sense of the Fed’s plans in the days and weeks ahead, more volatility may be seen. With downside pressure already building in equities and other risk assets, it may not even take much for them to really cave in and decline heavily. A major equity blowout, for example, has the potential to fuel significant buying in gold and other metals. This buying could take gold out of its recent trading range and could force a reckoning at overhead resistance levels. The bulls first have their sights set on retaking the $1900 level. From there, they will look to produce a close above key resistance at the $1950 area. Should this unfold, the metal could rapidly overtake the $2000 level or beyond and possibly test all-time highs.

 

The bears are looking to produce a close below key support at the $1850 level. If successful, the market could find itself very vulnerable to a substantial decline that could see prices test the mid-1700s before finding support. In that case, even the most determined bulls could throw in the towel, leading to a significant sell-off that could find itself exhausted quickly.

 

In the meantime, the yellow metal is likely to take its cues from both interest rate expectations as well as geopolitics. The ongoing war in Ukraine will be watched closely and could keep some sort of floor under the gold market as long as it rages on. The market is still in no man’s land, however, until key areas are breached either up or down.

Investors Rethink Fed Meeting

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After some initial exuberance following yesterday’s FOMC meeting conclusion, investors have seemingly come to their senses today. Stocks are down and down huge, with the benchmark Dow Jones Industrial Average off by some 1200 points in late afternoon action. Spot gold is declining as is crude oil and equities, and it has seemingly become just one of those days that investors will look to forget sooner rather than later

 

After seeing some strong gains early in the session today, the bulls have faded quickly and all of those gains have now been erased. The gold market is having to deal with some serious obstacles today, including a fresh 20-year high for the dollar, lower crude oil and rising bond yields. The benchmark 10-Year Note is now at a 3.5-year high, fetching a yield of over 3.08%. Despite the Fed’s seemingly dovish rhetoric of yesterday, investors seem to believe that the central bank will remain focused on inflation and will do whatever it needs to do to get problematic inflation under control.

 

Now that the FOMC meeting and rate hike has come and gone, investors and markets will turn their attention to Friday’s non-farm payrolls data. The highly anticipated jobs report is expected to show a gain of 400,000 jobs for April. This figure is a bit lower than March’s 431,000 jobs added yet still respectable. The jobs report may be especially important now as it could provide further reason for the Fed to tighten aggressively. A stronger than expected report is likely to bolster the idea that the Fed will remain on track and will raise rates aggressively to battle inflation. Should the report miss expectations, however, it could set the stage for some disagreement about the Fed’s plans and may embolden those on the dovish side of the ledger.

 

The Fed is likely to raise rates by 50-basis points at its meetings in June and July. A series of 50-point hikes indicates the central bank means business with regards to inflation and will sacrifice higher stocks and risk assets to get price pressures under control. Although markets now expect such a move, it does not mean that an aggressive Fed will not come with heightened volatility and some major sell-offs.

 

The gold market bulls remain on the defensive as prices remain below the key $1900 level. The bears may be gaining momentum, and another test of support at the $1850 could be in store in the days ahead. The metal remains in no man’s land for now, until it breaks support or resistance on a closing basis. Once the metal does break out above or break down below, it could set the trend for the weeks ahead. The market has, thus far, been largely gobbled up on any significant declines. Whether that remains the case on a fresh breakdown below $1850 is unclear. The bears could find some legs underneath them at that point and could look to explore even lower prices in the weeks ahead. If the bulls are able to turn things around and retake the $1950 level, they may find themselves encouraged by another failed decline lower and could see prices rise to well over $2000 in a short period of time.

Tick Tock Tick Tock

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The markets are sitting tight and awaiting the latest FOMC meeting conclusion and announcement. It is widely expected that the Fed will raise rates by 50-basis points today rather than 25. Some have even suggested the central bank could elect to raise rates by 75-basis points today. Arguments can be made for all levels of a hike. The recent GDP data miss could give the Fed reason to rethink its aggressive stance and could possibly lead to just a 25-point hike. Any variance from a 50-point hike could see some fireworks, however, as investors are forced to rethink their strategies. That being said, given recent trends in the market and gold’s lack of upside on weaker than expected data, the path of least resistance for the metal may be lower.

 

Markets are calm ahead of this afternoon’s announcement and presser by Fed Chair Jerome Powell. The biggest issue of the decision this afternoon is not how much the Fed will raise rates today, but how aggressive it plans on getting in the months ahead. Inflation is clearly a major problem. The war in Ukraine will only make price pressures even worse and the Covid lockdowns in China may stress already-strained supply chains to the maximum. The Fed’s commentary today could be critical for putting markets at ease and setting the path of expectations going forward. On the other hand, a lack of clarity by the Fed today could put markets into a tizzie as interest rate expectations become unanchored and as the unknowns surrounding monetary policy increase.

 

Worries over inflation could increase substantially if the Fed does not take an aggressive course of action. Stocks and risk assets, however, could potentially tank if the Fed raises rates quickly and aggressively. The central bank has seemingly backed itself into a corner, however, and will be forced to choose between allowing inflation to get even more out of control or the potential for a bear market in stocks and risk assets. The Fed has recently made it clear that it intends to fight inflation regardless of the consequences. The Fed has been known, however, to change its mind rapidly and pressure from politicians and others once equities really begin to break could prove to be too much for the central bank which could then adjust its thinking. Going only part of the way would likely cause even more harm, however, as inflation would still be problematic while stocks could be lower. This is arguably the worst case scenario the Fed could put itself into at this point.

 

For the time being, the bears remain in control on the daily chart and the path of least resistance may be lower. The bears will look to produce a close below key support at the $1850 level. The bulls will target a close above resistance first at $1900 and then at $1950. A breach of these levels above or below could set the trend for weeks to come and may determine gold’s direction for the foreseeable

Will The Ground Shake Tomorrow?

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Wednesday afternoon could see some fireworks this week as the FOMC meeting concludes. It is now widely expected that the Fed will raise interest rates again, but will hike rates by 50 rather than 25-basis points as it did in the previous meeting. This could only be the first of several meetings, in fact, where the central bank hikes by 50-basis points or even more. The Fed has seemingly acknowledged the real threat of inflation at this point after suggesting previously that price pressures were transitory and would abate on their own within time. After getting behind the eight ball quickly, the Fed may now be forced to attempt to catch up with aggressive policy measures. Although such a move may be necessary, it will not come without some pain. Stocks and risk assets could be hit hard by an aggressively-hiking Fed, and as capital ploys out of these assets it could be looking for a place to hide. Gold could stand to benefit because of this, and benefit handsomely.

 

Gold hit the $1850 support level in the overnight session today and has since staged a bit of a bounce back higher to current levels around $1872. Now that gold has touched this level, the question is whether it will be able to sustain a bounce higher again or if it will falter and retest this level on the downside. Given the anxiety over the FOMC meeting this week, a rapid run down to $1850 or even $1820 cannot be ruled out. Shorts may hit the sell button in a panic tomorrow based on the Fed’s actions or commentary and a knee-jerk reaction lower is very plausible. Conversely, a rapid move higher could also be seen depending on reaction to the Fed and could take prices back to the $1900 level or higher.

 

Expectations are wide for the Fed to hike by 50-basis points tomorrow and at its next couple of consecutive meetings. Even though rates may be going higher, however, the Fed could be unlikely to have a dramatic impact on the gold market. Real interest rates, after all, will remain negative. If stocks and risk assets sink further on an aggressive Fed, investors may have little place to go outside of gold to put capital to work in. Despite recent downside, the gold market has held some key support thus far as the bulls are willing to step in and buy. If that trend continues, it may simply be only a matter of time before the yellow metal stages an upside breakout that could see it challenge previous all-time highs.

 

The bears remain in control of the metal on the daily chart. The bears will look to take the market lower and produce a close below support at the $1850 level. The bulls will look to retake the $1900 level and then the $1950 level. A close above or below these levels could suggest a continuation and prices may keep going in that direction until exhausted.