In perhaps the most important economic report of the week outside of tomorrow’s Fed interest rate decision, inflation appears to be cooling further. The latest reading of the Consumer Price Index showed inflation rising at a rate of 7.1% year-over-year. That figure was lower than the 7.3% rise forecast by many analysts and appears to have provided markets with a very large sense of relief. The question now may become whether the Fed sees the need to keep raising rates early next year or if it will decide to take a pause and let previous hikes work their way through the economy. While the report still shows massive inflation, the slightly cooler rate of price pressures may give the Fed much to consider in the weeks ahead as 2022 comes to a close.

Gold surged to a five-month high following the report, while stocks also surged sharply higher. After being up over 800 points this morning, the Dow Jones Industrial Average has given back the majority of those gains throughout the session. In mid-afternoon trade, the Dow is now only higher by 56 points or so and could even go negative before the end of the session. Gold has given some of its gains back as well, although the yellow metal is still sharply higher on the session by nearly $30 per ounce.

With spot gold now valued around $1810 per ounce, the bulls will need to show they can hold the $1800 level in the days ahead. Today’s upside puts the market on very solid technical footing. That footing may become very fragile, however, if the bulls are unable to hold $1800. A move back below this key technical barrier could give the bears some ammunition and could fuel a further leg lower in price. On the other hand, any moves back towards $1800 may now be aggressively bought as the bulls look to defend this area on the chart.

The yellow metal may remain somewhat quiet and subdued ahead of tomorrow afternoon’s FOMC decision. The Fed is expected to raise interest rates again. The question this time around is by how much. While another 75 point rate hike is possible, it has become increasingly unlikely. The Fed will almost certainly raise rates tomorrow by 50 basis points and step away from the bigger, more aggressive hiking seen in recent months. The Fed is likely to keep raising rates, however, and may now leave rates at higher levels for a longer period of time. Despite this notion, the market bulls like the idea of slower and smaller rate hikes and may keep pushing prices in gold and stocks higher until proven wrong.

The U.S. Dollar is sharply lower today after hitting a 5.5-month low following the CPI data. The dollar has been a major roadblock to higher gold in recent months, and if it reverses course it could also fuel buying in gold that could see it quickly approach all-time highs or beyond.

The gold bulls are finishing off the week on the right foot. Spot gold prices are higher today by $8 per ounce, putting spot prices just under the $1800 level at $1797.50. With the market ending the trading week at a four-month high, the outlook for gold may be evenly split between the bulls and the bears. A key test for gold may be seen as soon as Monday. The bulls will almost certainly try to test the $1800 level now that the market is close. If the bulls are able to produce a close above this key level, the road may be open to further upside. If the bulls fail, however, the bears may regain control of the market rapidly and try to take prices back to the $1700 level.

This Wednesday, the Federal Reserve will announce its decision on interest rates. After some commentary about slowing the pace of rate hikes, it is widely expected that the Fed will raise rates by 50 rather than 75 points on Wednesday. Likely far more important than the rate hike itself, however, will be the updated Fed projections. While this week will determine monetary policy through the end of the year, markets may now be far more concerned with how the Fed may approach policy as 2023 gets underway. If the Fed does in fact take a slower approach to rate hikes, it may provide gold and stocks with a needed boost. If inflation remains robust, however, and the Fed does not slow the pace of hikes, it could lead to not only lower stocks and gold but also to an economic recession.

The $1800 level is the near-term key for the gold bulls. After acting as support previously, the $1800 level will now likely act as resistance. If the bulls can retake this level on a closing basis, it would likely encourage more bulls to step into the market to take advantage of upside momentum. This could lead to a fresh trading range for gold higher than the previous range and trending to the upside over time. A failure at this level by the bulls could be catastrophic. A failed attempt to take out resistance at $1800 could send a signal to the bulls that the market does not have the underlying strength to move higher, and could give them reason to exit the market rapidly. This could, in turn, lead to a robust and rapid decline in gold that could see the market give back $100 or more very quickly.

In  our view, the gold market may very well produce a close above $1800 in the week ahead. The market could see some increasing volatility as the Wednesday Fed day approaches, but should stay on a sideways to higher trend. Once the Fed day is over, the market could then spend the rest of the year trading sideways to higher in lackluster, uninspiring price action.

The Gold market has been discussed significantly in recent months. The metal has had a hard time avoiding declines as the Fed has stayed the course thus far and continued to raise interest rates aggressively. Now that the Fed has signaled it may slow the pace of further rate hikes, the metal has seen a shift in dynamics that have taken it higher. The metal now sits just below the key $1800 level, and is within a day’s push of retaking this technical level and setting itself up for more upside in the weeks ahead. Action in the gold market has been primarily a function of the Fed and its outlook for rates in the months ahead.

Although this has not been discussed much recently within financial media, there still exists a growing move away from the dollar. The U.S. currency remains the globe’s reserve currency of choice, but for how much longer is anyone’s guess. This week has seen some headlines that may be indicative of that move gaining steam. It was reported this week that the nation of Ghana is seeking to structure a gold for oil barter system to pay for its oil using gold rather than U.S. Dollars. It was then reported Wednesday that China has added some 32 tons of gold to its reserves, for the first reported addition to its holdings since 2019. This addition now puts China’s gold reserves at 1,980 tons.

Despite the fact that China’s announcement has seemingly come out of the blue, it is not at all surprising. Many analysts felt China was building its gold reserves throughout the year. The timing of this announcement may be far more important than the amount of gold purchased. The announcement of China’s addition to its holdings comes two days after increasing talk of gold for oil By Ghana. As de-globalization accelerates, many nations could look to amp up their commodity holdings and add more gold to their reserves. This would seem to suggest that the move away from the dollar is gaining more traction.

If global nations continue to move away from the dollar, the currency is likely to lose value over time. The dollar has been quite strong in recent months as it took its cues from the Fed, rising as the central bank raised interest rates. If the dollar were to reverse course at some point, however, the gold market could stand to gain substantially.

While a larger scale move away from the dollar will not happen overnight, the move is already underway. This week’s gold for oil talk is just the latest salvo in a battle that began years ago. Other nations have also begun looking for ways to transact outside of dollars. This has led to the establishment of credit lines and other vehicles for the transfer of funds between nations. This move away from the dollar could take years to come full circle, but when it does dollar holders better beware.

In the meantime, the gold market is likely to take its direction from the Fed and its plans regarding monetary policy. Jerome Powell recently suggested the Fed would slow the pace of its rate hikes. While that was cheered on by the dovish camp, Powell did also state that rates may need to remain higher for longer in order to get inflation under control. Powell may simply be trying to keep market expectations in line with likely scenarios, but he did seem to signal that a more dovish Fed may be seen in the months ahead.

The gold market is solidly lower in early action Monday after being quite a bit higher earlier in the session. The yellow metal had hit a 3.5 month high before the bears took control today, and the overall trajectory of the market appears positive. The short-term technical advantage seen in the gold market could encourage further chart-based buyers to step in as well, possibly providing some key support for the metal as it looks to retake the $1800 level. Now at $1775 and change, the bulls have some work to do to get the market above this key level on a closing basis.

Markets may still be digesting last week’s stronger-than-expected jobs report. The strong jobs data could keep the Fed on its current path, tightening rates aggressively as it goes. This is in sharp contrast to some recent comments from Fed Chief Jerome Powell, who stated the Fed did not want to overtighten and be forced to cut rates quickly. Powell effectively alluded to a slower pace of interest rate hikes, which the markets view as dovish. Powell was also careful to suggest that the Fed will keep its foot on the gas until the job is done and that rates may need to remain elevated for some time to calm inflationary pressures. The dovishness of Powell’s comments boosted gold last week, and any further signs of the Fed taking a pause or even reversing course on rates could send the yellow metal sharply higher.

The gold bulls now have the advantage on the daily charts. This could make today’s decline an attractive buying opportunity for longs looking to get into the market. More than likely, however, is that more longs may look to enter the market once it closes above the $1800 level. This level is a key technical test for the market, and the bulls may want to see it hold before getting overly excited.

Over the weekend, OPEC did not make any changes to its oil output. The oil cartel elected to leave its collective output unchanged for the time being. Although crude oil prices remain elevated at $82 per barrel, they are not overly elevated and do not appear to be a major source of economic concern at current levels. Likewise, oil does not appear to be much of a factor for gold at current price levels.

The gold market has already failed to hold the $1800 level once. If the bulls are unable to launch a more sustainable assault on this key level, the bears could take further control of the market and drive prices lower. This could equate to another failed gold breakout and could frustrate the bulls harshly. If they are able to take out this level in convincing fashion, however, the sky’s the limit on the upside. The market could quickly move back towards previous all-time highs or even beyond. It may all come down to the Fed, however, and what the central bank has planned for early 2023.