Gold Weaker Ahead Of FOMC

/in , /by

The gold market is a bit weaker Monday as investors prepare for this week’s FOMC meeting announcement. It is widely expected that the Fed will again raise interest rates by 75-basis points, marking the fourth consecutive hike of 75-points by the central bank in recent months. It is also expected that the Fed will raise rates again next month to finish off the year on a hawkish note.

 

Price action in gold and silver may remain fairly subdued ahead of Wednesday’s Fed announcement and press conference. The biggest question on investors’ minds currently may be when the Fed may look to take its foot off the gas and take a pause from its aggressive rate hikes. The Fed may largely dictate price action for gold in the weeks ahead. The central bank is highly unlikely to take its foot off the accelerator before the new year gets underway, and even if it elects to do a smaller hike in December it may not be enough to appease investors that want to see increasing dovishness in monetary policy.

 

Concerns over a Fed-induced recession seem to have abated to a large degree in recent weeks. The economy has remained strong, with jobs remaining robust and little signs of a recession right around the corner. That could change and change quickly, however, if the Fed keeps the pedal to the metal into 2023. While stocks have seen some increased volatility in recent months, they are currently trending higher again and do not seemingly believe that a recession is approaching quickly. The uptrend in equity markets may give the Fed more wiggle room to stay on its current course, and the central bank could very well find itself hiking rates aggressively into 2023. Investors have seemingly accepted more hikes into the end of the year, but next year is another wildcard altogether.

 

That makes the Fed’s commentary Wednesday even more important. The investing public has grown somewhat accustomed to a hawkish Fed. Many do not believe, however, that the Fed will stay on its current path until inflation reaches its desired annual target of 2%. At some point, the Fed may throw in the towel and decide to take a break or even reverse course and start easing again. It does not have to be today, it does not have to be tomorrow. Investors do want to know when it may be, however, and that the Fed is already thinking about it.

 

For the time being, the $1600 and $1700 levels remain key technical market areas. Whichever side is breached first, on a closing basis, may see price action continue in that direction until something changes. The metal could also spend more time in between these areas as it awaits fresh inputs. Whatever the case may be, current price levels could prove to be an excellent value for the long-term investor. Gold prices are considered by some to be “on-sale” at current levels. Once the market regains its footing and resumes its long-term uptrend, recent price levels may not be seen ever again as the market moves back to all-time highs or beyond.

Gold Pressured By Stronger Dollar And Rising Yields

/in , /by

The gold market is seeing some solid selling pressure in early action Friday. Just as gold rallied Wednesday as the dollar declined and yields stumbled, the gold market is today being sold off as the dollar and yields rebound. With few outside developments to drive the gold market, investors have been focused on its key outside markets in recent action. The dollar and treasury yields have both been major factors for price action in the gold market and will likely continue to act as such for the foreseeable future.

 

The Fed is set to meet next week, and at that point the gold market may have more to go on. It is widely expected that the Fed will implement another 75-basis point rate hike next week, its fourth in a row. What investors may be more interested in, however, is the central bank’s commentary. While the Fed will almost certainly hike rates again in December to finish the year, that hike could be smaller than recent hikes have been. A 50-point hike to end the year could potentially send investors a message that the Fed may take an increasingly dovish approach to policy in the year ahead.

 

The gold market may also be affected in the weeks ahead by global events. The war in Ukraine is still raging on, and the threat of a Chinese invasion of Taiwan appears to be on the rise. Should another war break out somewhere in Asia or elsewhere in the world, investors may flock to perceived safe haven assets such as gold. The war in Ukraine has been fairly quiet for some weeks now. That quiet can turn to noise and turn quickly, however, if things change.

 

The gold bulls may need to keep waiting for the Fed and its plans for early next year. The central bank has, thus far, stuck to its guns and continued hiking rates aggressively. While it is extremely unlikely for the Fed to adjust its policy or goals this year, early next year could provide the central bank an opportunity to take its foot off the gas pedal and take a pause from hiking rates. Not only could the Fed elect to take a wait-and-see approach, it could even begin to start easing rates again if the economy has slowed down to a dangerous level. Although next year may sound like quite a way off, it is not. 2022 has only two months remaining and then 2023 will begin. Waiting until next year could also allow the Fed to preserve some sense of credibility as it may look foolish to make changes now after saying time and time again that it would stay the course until the job is done.

 

Gold may remain in a range for the next several weeks until more is known about the Fed’s plans for next year. The $1600 and $1700 levels are key technical targets for the bulls and bears. If either level is breached, on a closing basis, the market could potentially continue to move in that direction.

Gold Weaker As Dollar Rebounds

/in , /by

Following a decent rally yesterday in the aftermath of a weaker dollar and declining yields, the gold market is now weaker Thursday as the Dollar Index stages a rebound. Prices may also be feeling the pressure of a better-than-expected GDP report which showed the first estimate of Q3 GDP up 2.6%. This was higher than the forecast for a rise of 2.3% and could give the Fed more leeway in keeping its foot on the gas pedal with interest rate hikes. The economy has shown some strong resiliency in recent months towards inflation and other factors and may possibly avoid a recession even if the Fed remains aggressively raising interest rates.

 

The European Central Bank hiked interest rates today by .75%. This is the second .75% hike in a row for the ECB and rates in the region now sit at 1.50%. The Euro Zone will have some work to do to catch up to the U.S., however, where interest rates are now at 3-3.25%. The U.S. central bank will almost certainly raise rates again at its November meeting. That hike will be followed up by another hike in December. The Fed may raise rates by another 75-basis points next month. That would mark the fourth consecutive hike of 75-points by the Fed as it looks to aggressively battle inflation. The December hike could be a little smaller, with many analysts suggesting the Fed may hike by 50-basis points to end the year.

 

How the Fed proceeds early next year may be the determining factor for markets in 2023. The Fed has maintained its hawkish stance and rhetoric. Many felt the Fed would signal a pause or even reversal in its posture by now, but that has not been the case as of yet. At a time with so many unknowns and sources of anxiety, the Fed may want to preserve its credibility and stick to its guns no matter how painful it could get for the economy. The Fed has acknowledged these risks already yet seems intent on staying the course.

 

Rate hikes do take some time to work their way through the economy. As 2023 begins, the Fed could decide to take a breather and allow some time to pass to monitor the effects of their previous rate hikes. Of course, what the Fed does or does not do may be dictated by inflation and the data. If price pressures remain at 40-year highs or move beyond, the central bank could be forced to act even more aggressively, possibly even hiking rates by 100-basis points. If inflation shows some signs of having peaked, however, the Fed could take an increasingly dovish approach to policy and take a pause from the rate hiking business. Whatever the case may be, numerous markets including the Dollar Index, treasuries and gold all stand in the balance. For the time being, the $1600 and $1700 levels are keys for the bulls and the bears. Whichever is breached first may dictate price action for the months ahead.

Have The Dollar And Yields Reached A Top?

/in , /by

The gold market is higher on Wednesday as spot prices have climbed a solid $12 per ounce to now sit at $1665. The yellow metal hit a two-week high today as it benefited from a decline in treasury yields and the dollar. Also lending the metal a hand was stronger crude oil prices.

 

There are some key chart developments that could be pointing to something of significance: a top in the Dollar Index. At the same time, U.S. equity markets are showing some signs of a bottom having been reached. This could potentially mean that inflation has or is in the process of peaking. If that is the case, the Fed may not need to keep its foot on the gas with its aggressive rate hikes. The central bank could cross the finish line a lot faster than expected on its hiking campaign, and if so, markets may return to a degree of normalcy.

 

A dollar top and stock bottom could also suggest that the markets and global economy may be able to avoid a major recession that has been feared for several weeks now. Precious metals traders appear to be taking notice of these recent chart developments, possibly buying as they believe that the dollar and yields have already peaked and metals demand may improve if no recession is seen.

 

While it may be too early to tell if that is in fact the case, the yellow metal still has some significant hurdles to higher prices. The Fed will almost certainty hike rates again this month and next month, ending the year as it said it would. Not wanting to lose any credibility it has left, the central bank is unlikely to reverse course suddenly even if inflation has topped out. A pause or reversal by the Fed may be far more likely early next year. That does not mean gold cannot rise in the meantime,  but it is something to keep in mind.

 

The yellow metal remains stuck in no man’s land. The $1700 level is a key for the bulls in the short-term, while the bears will target a close below the $1600 level. Whichever side breaks first may be the side to which prices continue. The bulls have done a good job of absorbing much of the selling pressure seen in recent weeks. The bargain hunting buying seen during the last few months could eventually lead to an explosive upside move. The bulls appear patient and willing to wait. The bears, on the other hand, may be forced into a significant short-covering rally soon if the downside does not continue.

 

The dollar and the Fed likely hold the keys to gold’s fortunes. The Dollar Index is at the highest levels seen in years, while yields have also exploded higher to multi-year highs. If this trend stops or reverses course, the gold bears may get annihilated. The Fed could be the one to fuel such a reversal if it looks to take a pause or even loosen rates again.

Gold Higher On Weaker Data

/in , /by

The gold bulls are getting a slight reprieve from the recent selling pressure today as spot gold is up by several dollars per ounce. Spot prices are higher by over $5 per ounce at just under $1655 in early afternoon trade. The day’s upside may prove fleeting, however, as prices could continue to cave in the days ahead.

 

Today, markets got the latest reading of the consumer confidence index. The report pointed towards slumping confidence in the economy and potentially tough times ahead. The report pushed the dollar substantially lower while also fueling a decline in treasury yields. Although a decline in both the dollar and yields is a positive for gold, the bigger picture says investors may now consider whether the Fed will keep its foot on the gas and continue hiking interest rates aggressively.

 

The question of what the Fed will do early next year is likely to remain a key market focal point as 2022 comes to a close. The central bank has said, time and time again, that it intends to keep raising rates until inflation is under control. If the Fed plans on inflation getting to its 2% annual target rate, it has a long way to go. Price pressures remain stubbornly high and are still near 40-year highs.

 

Investors are also watching what is happening in other parts of the world. The war in Ukraine continues on, and the small nation appears to be holding its own against Russia. The lack of progress by Russia has fueled some fears of what President Putin could do next. The threat of nuclear weapons remains real and the globe will continue to monitor this situation closely.

 

Chinese President Xi Jinping recently consolidated his power at the communist party meeting. The power grab by Xi may be a cause for concern for the west and the rest of the world. Some Asian investors feel he will try to pull the globe’s second-largest economy further from the west while continuing to implement Covid lockdowns in parts of the country. These lockdowns have already had a major impact on the economy and would continue to do so if they are continued.

 

The gold market bears remain in firm control of the daily charts. The $1700 level is a must-have for the market bulls. The bears will target the $1600 level to potentially fuel a fresh and significant leg lower.

 

As the gold market awaits more information and possibly action from the Federal Reserve, it may also be impacted by other asset classes. Bitcoin has been quiet in recent months but remains a market of interest. The correlation between gold and Bitcoin has risen, and that may point to investors viewing the digital currency as a store of value or safe haven. That could lead to competition for gold in the months and years ahead and is a situation worth taking note of for gold investors.

Egypt Pointing To More Trouble For The Dollar?

/in , /by

Egypt does not appear to like the idea that its currency should be pegged to the U.S. Dollar. The new central bank governor and his team are already working on a new set of currencies and gold that would form a new currency indicator. In order to change the notion that Egypt is pegged to the dollar, it will create a new index that uses these currencies and gold to make an index for the Egyptian Pound.

 

Egypt and America are not major trading partners. It makes little sense, therefore, for the Egyptian currency to be pegged to the dollar. Even in the absence of a true peg, the idea that the pound is somehow pegged to the dollar seems irritating to Egyptians. They want their currency tlo be seen against every currency, not just the king dollar.

 

The commentary out of Egypt may be the latest salvo in the war against the dollar. For some time now, nations across the globe have expressed the desire to move away from the dollar as the global reserve currency of choice. Some countries, such as Russia, have already established means of transacting commodities, such as crude oil, not in dollars but in other currencies. Although the dollar is still considered to be the global reserve currency of choice, its days are likely numbered.

 

The dollar has not shown much weakness in recent months, that’s for sure. The Dollar Index now sits around the 112 level, an area it has not visited for many years. The Fed’s aggressive rate hikes and hawkish rhetoric have likely been a major catalyst for the dollar rally and could continue to act as such as long as the Fed maintains its current stance. If or when the Fed does reverse course, however, the dollar could find itself a long way from fair value with nothing to hold it up.

 

As a dollar denominated commodity, gold has a strong tendency to move in the opposite direction of the currency. As the dollar has risen in recent months, gold has lacked any upside and has declined. Should the dollar reverse and start declining, however, gold could find its way and return back to all-time highs or beyond. A major decline for the dollar could also drag treasury yields down along with it, also possibly boosting gold in the process.

 

The dollar has been the topic of much discussion in recent months, perhaps for the wrong reasons. Although the rally in the greenback has been impressive, the dollar could run into trouble. The U.S. remains in massive, massive debt with a tidal burden of over $31 trillion at this point. With rising interest rates, it may only be a matter of time before that debt becomes unserviceable. At that point, the U.S. could choose to default or to debase its currency. A currency debasement would lead to significant losses for those who are long dollars. At the same time, it could send gold skyrocketing into new all-time highs that could see the metal hit $3,000, $5,000 or even $10,000 per ounce in a very short period of time.

Gold Getting A Boost

/in , /by

The gold market is higher at midday Thursday as treasury yields and the dollar have pulled back. Higher yields and a stronger dollar have been major obstacles to any upside in gold in recent months. The pullback in these markets today is giving the bulls a little reason to buy amid the recent trend lower.

 

It is unclear if today’s upside in gold is the start of a run higher or is simply a small relief rally as prices have trended lower recently. The smart money would likely bet on it being a relief rally, and the market could resume its trend lower on Friday or early next week. The bears are in control on the daily charts as prices hit a fresh three-week low today. The bulls must produce a close above the $1700 level in order to attract fresh buying interest. As long as the market remains below this level, it will maintain the current “sell the rallies” mentality.

 

The gold bulls seemingly do not know what to do as recent outside market action has weighed heavily on the metal. Rising treasury yields and a stronger dollar index have wreaked havoc on the yellow metal, and could continue to do so if present trends remain in place. It seems as if these markets keep climbing, gold may keep falling.

 

The gold market has not been completely broken as of yet, however, and it still remains a very attractive investment for long-term players. Once the dollar rally concludes, for example, gold could potentially embark on a rally that could not only see it recover lost ground over the last few months but could put it right back at all-time highs or even beyond. The potential for gold to take off quickly and move not only back to all-time highs but well beyond has long-term investors interested. The dollar rally has been swift and severe, but as anyone who has been around financial markets knows, moves don’t last forever. At some point, the dollar will come back to earth, and at that point it may be gold’s turn to shine.

 

Regardless of when the dollar may roll over, inflation remains a major concern in the meantime. Prices have risen to their highest levels in 40 years, and there has thus far not been many signs of a slow down. The price pressures are not limited to oil and energy either, but have penetrated the housing, food, healthcare and other markets. These price pressures are literally making it too expensive to live on a day-to-day basis. As consumers pinch pennies to get by, the lack of spending will likely put the economy into a full-blown recession before long.

 

Once a recession does hit, investors may sing a very different tune about where they put their capital to work. That could send buyers into the gold bullion market and could fuel a significant price reversal for the yellow metal.

Gold Taking A Beating Today

/in , /by

The gold market is being hit hard today as rising bond yields and a stringer dollar take their toll on the metal. Down nearly $20 per ounce, the gold market has now hit a three-week low. The yellow metal does not seem to have much going for it this week as risk appetite is a bit stronger and as earnings are coming out stronger than expected.

 

The dollar is bouncing from a two-week low today as treasury yields climb. Yields now stand at a 14-year high and could see even more upside if the Fed continues with its current plans to keep hiking rates aggressively. The Fed will be meeting again in early November, and as of right now the markets seem to be expecting another 75-basis point hike from the central bank. The Fed may then follow up its November hike with another hike of 50 to 75-points in December to finish off the year.

 

If the Fed does continue to hike rates aggressively, worries over a recession could expand further. The recession concerns have already fueled some market volatility in recent months and could send volatility soaring if a recession appears to be imminent. The Fed will obviously attempt to tread carefully as it looks to get inflation under control. Despite the Fed saying it believes it can quell inflation without causing a recession, markets do not like higher rates. If rates continue to climb, they may reach a breaking level at some point that could send the economy for a sharp slowdown.

 

Until that day comes, the markets may keep seeing some up and down price action. Despite worries over a recession, the economy still has a number of good things going for it that may keep investors out of gold and looking to get into stocks on any significant dips in value. The gold market may not see any sustainable upside until such time as a recession becomes “official” or the Fed decides to take a pause or reverse course.

 

Investors spent several months believing the Fed would eventually elect to take a pause and possibly even start easing rates again. This has not happened thus far, however, and the Fed has maintained its hawkish rhetoric for the time being. It is this rhetoric that may be boosting yields and the dollar and hence acting as a major obstacle to a gold recovery. The biggest question now is how long can the Fed maintain its hawkish stance? At what point might the Fed start to suggest that it could take a break or even start lowering rates again?

 

The day of reckoning for the Fed may arrive sooner rather than later. Once it does, the Fed will have to make decisions that could influence markets not only now but for many years to come. Their decisions will have the potential to send gold skyrocketing higher, and if so, you will want to own some of the metal before it does move sharply higher. That makes now the ideal time to not only buy gold at fire-sale prices but to enjoy the comfort that comes along with gold ownership whether it rises or declines in value.

Inflation Still Running Hot

/in , /by

Inflation has been the topic of much financial discussion in recent months. The high pace of inflation, clocked at 40-year highs, has made everything more expensive. From gasoline to groceries to shelter to clothing, the prices of everyday goods and services have continued to rise.

 

The strong bout of inflation has given the Federal Reserve reason to hike interest rates aggressively in recent months. The Fed has already raised rates by 75-basis points not once, not twice, but three times. The next hike to come may also include a 75-point raise and could possibly even include a hike of a full 100 basis points.

 

Some of the data in recent months seemingly indicated that perhaps inflation had finally found a top. A slowdown in jobs, manufacturing, real estate or other key areas of the economy could potentially point to a slowdown for price pressures. The possibility of a slowdown in prices has kept markets calmer than they may otherwise have been. Hopes for a Fed reversal have also remained fairly consistent. Some still hope, and believe, that the Fed is likely to take a pause on its rate hikes and possibly even begin to lower rates again. While this is always “possible,” it is highly unlikely at this point in time.

 

Recent inflationary data showed that price pressures have really gone nowhere. This past week, the latest CPI data showed that prices were 8.2% higher for September than the year prior. Perhaps of even greater concern is the core inflation rate. Core prices were 6.6% higher than the year before and were the highest recorded in four decades. The core inflation rate is the more stable reading of the two, and a higher core rate points to trouble ahead.

 

Central bankers have already raised rates by 300-basis points this year. With a hot core inflation reading still in play, however, the Fed may have significant work left to be done. Inflation may not only have not peaked as of yet, but could still increase further in the next 12-18 months. If prices continue to rise, the Fed may have little choice but to keep hiking interest rates aggressively. This may not only slowdown the economy, but could lead it straight into a major recession.

 

The gold market has been under some pressure in recent weeks and may continue to see downside pressure if it remains below some key technical levels. The king dollar may keep gold prices from making a sustained move higher as long as it keeps rising. It may continue to rise as long as the expectation for higher rates remains firmly in place. The gold market may remain sideways to lower during that time as well. Once the Fed does signal that rates are high enough or likely to reverse, the gold market could see a sustained breakout that could take it back to all-time highs or beyond very quickly.