The gold market is seeing some moderate selling today as geopolitical tensions have eased-at least for now. The yellow metal is down today despite the latest reading of the Producer Price Index registering a sharp rise from a year ago. The index showed a rise of 1% from the previous month, with a rise of 9.7% from last January. Estimates were looking for a rise of .5% month-over-month and 9.1% year-over-year. Needless to say, today’s PPI data beat estimates by a wide margin and reinforced the idea that the Fed is clear to begin hiking interest rates at any time now.

The PPI data showed inflation is everywhere as it covered a wide variety of categories. Not only is inflation everywhere, but it also appears to be gaining momentum. This inflationary momentum may give credibility to the idea of the Fed hiking rates by a half-point next month rather than just a quarter-point hike. The last time the central bank hikes so aggressively was in 2000. That half-point rate hike signaled the end of the dot.com stock rally as equities proceeded to decline significantly over the following years.

Whether this time around will bring a similar fate for stocks remains unclear. The Fed has seemingly gone out of its way to avoid upsetting stock investors in recent years, allowing rates to remain at or near zero when perhaps it should have considered a rise more carefully. Despite any bearish effects the Fed hikes may

have for stocks and risk assets, the Fed now finds itself pinned firmly into a corner from which there is no easy escape. If the Fed does not raise rates aggressively at this point, inflation could become really out of control. If the Fed does hike rates aggressively as many feel it should, it does risk a major trend reversal in equities with the possibility for heightened volatility and a major sell-off. The months ahead could, therefore, be filled with major stock selling, rising volatility and a general risk-off mentality. Such a market environment could potentially lead to higher gold prices as investors seek out alternative places to put capital to work.

The gold bulls have done well in recent weeks but their work is far from done. After finally breaching the $1850 level on the upside just yesterday, the yellow metal has fallen back to it today. We expect this level to hold-at least for today-and it could invite some who missed the rally yesterday to jump onto the bandwagon. If the market is unable to hold above the $1850 level, however, trouble could be on the horizon. A close below $1850 followed by a close below $1800 will likely be the bears’ next targets. The bulls, on the other hand, will look to take prices back to last week’s highs near $1870. Market movement between these levels may be viewed as noise and may not attract much buying or selling.

The worries over inflation have not abated in recent months. These concerns, rather, have increased significantly in recent weeks. Yesterday’s CPI reading of 7.5% and a core reading of 6% are the highest seen since 1982. The hotter than expected inflation data is shifting Fed expectations and may cause the central bank to hike rates faster or stronger than previously thought. Fed Funds futures are now pricing in a very strong likelihood of a 50- basis point hike in March rather than a 25- basis point increase.

A 50-basis point hike is significant for a few reasons. The Federal Reserve has not hiked rates by a half-point since the year 2000. At that time, the rate hike marked the end of the dot.com bubble which then saw markets decline significantly. Whether this time around has similar effects remains unknown. The Fed hiking by a half-point, however, is akin to the Fed unleashing a bazooka. Such a shock and awe type of move from the Fed is not unlikely, however, given how far the central bank has fallen behind the inflation curve. The question is what is the Fed willing to give up in return for a shock and awe rate hike? Such a move would almost certainly have an immediate and sharp bearish effect on the economy. Stock investors could quickly head for the hills, and equity markets could potentially see a sudden reversal or sell-off. Volatility would also likely increase substantially, and the markets could enter a prolonged period of heightened volatility as investors attempt to reprice assets and interest rate risk.

The bond market appears to be pricing in a half-point hike next month. The gold market seems to be on the fence, however, and does not appear convinced the Fed will take such action in a few weeks. The gld bulls, in fact, are pushing prices higher today, inching closer and closer to key resistance in the $1850 area. An upside breakout of this level on a closing basis would likely attract further buying interest and could set the stage for a rapid rally higher towards previous all-time highs or beyond. A failure of the bulls to take this level out, however, could potentially set up a sharp and significant leg lower. The bears are looking to take prices below the $1800 and then the $1780 levels on a closing basis. Success in doing so could mark an important turn for the market, and remaining bulls may become far more likely to throw in the towel at that point.

The next several weeks until the March Fed meeting may see volatility on the rise as expectations are repriced. That volatility could be settled down, however, if the Fed provides useful information at its March meeting. The central bank will have to offer an explanation if it hikes by a half-point rather than a quarter-point. If the Fed does a good job of laying out how it plans to proceed, markets may find some respite and calm. If the Fed leaves more unanswered questions, however, or lacks any real clarity in its remarks, look out below. Stocks and risk assets could fall hard and gold could potentially stand to benefit as investors seek out alternatives that may offer protection from inflation and preserve purchasing power.

As the new trading week gets underway, the gold bulls are seeing some further bullish momentum. Spot gold prices are up $12.80 per ounce today as equity markets see some afternoon buying. Inflation worries appear to be the primary driver of market action today. With corporate earnings generally being quite strong, investors today are continuing to digest last week’s non-farm payrolls data which was stronger than expected. The better than anticipated jobs data may act as a green light for the Fed to begin hiking interest rates next month and could pave the way for a series of hikes this year.

The Fed raising rates in just a few weeks time has markets worried but not overly so, at least thus far. While the Fed has already penciled in three interest rate hikes for 2022, many analysts believe the central bank will be forced to hike rates at least four times, possibly even more. Of course, the pace of any Fed rate hikes will likely largely depend on inflation and whether price pressures abate at all in the weeks and months ahead. Recent data would seemingly suggest, however, that price pressures may continue to rise and run rampant. The Fed seemingly has realized it is well behind the inflation curve already, and the central bank may act far more aggressively, therefore, than previously thought.

An increasingly aggressive Fed is not necessarily a bad thing for gold. The gold market has risen through previous rate hiking cycles and there is no reason to believe that this time around will be any different. The Fed tightening could affect stocks and risk assets, however, and may lead to a long period of heightened volatility and major stock sell-offs. A full-blown trend reversal is also a strong possibility. As equity markets come under increasing pressure, much of that capital could find its way into the gold market as investors seek out alternative places to put money to work. Such a scenario could, in turn, act as a major catalyst for higher gold prices, possibly even driving the metal into fresh all-time high territory.

In addition to the threat posed by inflation and the Fed, markets will also continue to monitor the crude oil market, the dollar and other geopolitical issues. Although it is trading lower today, crude oil prices are now firmly in the 90s and many feel that $100 per barrel oil will be seen soon. While stronger crude may be partly due to the inflationary environment, it is also the “leader” of

the commodity sector. Higher oil may, therefore, drag other commodities higher as well along with it. This could feed into the current inflation narrative and force investors to seek out asset classes that may provide protection and preserve purchasing power. It is difficult to imagine such a scenario in which the value of gold does not increase and increase substantially.

In the meantime, the bulls will look for a close above the January highs in the mid- $1850s while the bears will target a decline to the January lows around $1780.

The gold market is seeing some shifts in expectations for the year ahead. Rising inflation, an increasingly aggressive Fed and other factors may all have significant effects on gold and could keep it on the defensive in the year ahead. The gold bulls did make some upside headway today, however, as they look to distance the market from key $1800 level. Spot prices are up nearly $6 per ounce in late afternoon action, now sitting at $1806 and change.

Market expectations for gold have seen some significant shifts in recent weeks as market dynamics have been changing. Scotiabank today lowered its gold forecast for 2022 to $1800 per ounce. The bank reportedly sees Fed tightening of monetary policy as a major hurdle to higher gold and believes that gold is likely to maintain its recent range throughout 2022.

Scotiabank’s Tuesday report highlighted the notion that the Fed is looking to hike more and faster than previously anticipated. Markets may now, in fact, be pricing in five rate hikes rather than the three the Fed currently has penciled in. The Fed has also set up plans to shrink its balance sheet as well and the combination of that and rising rates may keep the gold bulls limited.

Although rising interest rates may provide some headwinds for the gold bulls, the metal is unlikely to see a major price route this year. Problematic inflation is likely to keep a solid floor underneath the gold market as the year progresses, regardless of how high rates may get lifted. In addition to inflation, the bulls may also be able to rely on general market uncertainties and the potential for an equity market sell-off or reversal.

The downgraded forecast from Scotiabank may not be the last downgrade. More banks may decide to shift their market expectations as well in the weeks ahead. Of course, just how far the Fed may be willing to go remains unknown. The Fed has sounded considerably more hawkish in recent commentary. The Fed has sounded increasingly hawkish before, however, and elected not to act upon their hawkish rhetoric. If the Fed does not follow through on rate hikes this time around, however, inflation could spiral out of control and leave the Fed grasping for a solution. The Fed seems to understand it is already well behind the inflation curve and it does not appear willing to risk a major price ascent from current levels.

Despite some recent selling, the gold bulls still have control on the daily chart. That control could be considered quite fragile, however, and they will need to demonstrate further strength and do it soon to maintain that control. With the market back above the $1800 level, the bulls will again target a run towards resistance in the $1850 region. The bears will look to take prices back below the $1800 level and then try for a close below support at $1775. Whether the bulls or bears win the next round, it could potentially lead to an extended move in that direction.

The gold market is not having a good day Thursday as spot prices are declining by some $25 per ounce. The selling in gold and silver today is being attributed to inflation fears and a stronger dollar. The U.S. Dollar Index has hit a 1.5-year high today as there may be growing belief in significantly higher interest rates in the year ahead. Traders can be a fickle bunch, however, and despite today’s sell-off in the metals, gold and silver could both return to a more bullish trajectory in short order if inflation persists.

The gold and silver markets are being sold as fears over an increasingly aggressive Federal Reserve grow. The Fed has only elected to begin tightening its monetary policy, however, due to the growing inflation problem. Rising prices have historically been a bullish factor for gold and there is simply no reason to think that may differ at all this time around.

In addition to Fed fears, the markets are also paying close attention to the ongoing data stream. Earlier today, fourth quarter GDP was released and showed a rise of 6.9% compared to consensus estimates looking for a rise of 5.5%. The Personal Consumption Expenditures index, or PCE, registered a reading of 6.5% annually in the fourth quarter. This reading was considered to be “hot” by many and points to the ongoing problem inflation has become. Even the weekly jobless claims data was upbeat and there does not appear to be much standing in the Fed’s way of taking interest rates higher and shrinking the balance sheet. Not only that, but today’s data also likely gave the dollar a major boost, and that dollar strength is likely a key factor in gold’s downside today.

Today, markets are still digesting the Fed policy meeting conclusion from yesterday. Although the Fed announcement did not have much, if any, effect on markets, Chairman Powell’s press conference following the announcement may have given markets something to think about. Powell was viewed as being more hawkish than expected, and it now appears that the central bank may be in a lot more of a hurry to get inflation under control. Powell alluded to employment being at a maximum, giving the Fed only inflation to worry about at this point. While the Fed has clearly fallen behind the inflation curve, the question now is just how far the Fed may be willing to go in order to catch up.

A period of heightened volatility could be in store for stocks and risk assets as investors await further clues from the Fed. The first of several rate hikes is now expected in March, and the Fed could at that time lay the groundwork for its plans for the rest of the year.

In the meantime, the gold bulls will remain focused on taking out upside resistance in the $1850 area while the bears look for a close below the $1800 level. A move in either direction could pave the way for an extended move that could take gold significantly lower or back towards all-time high levels.