The gold market finished the trading week on the strong side of the ledger, moving higher by about $7.50 per ounce. The bulls are trying to put some distance between spot prices and the $1700 level. Although spot prices remain below the $1720 level, the bulls do now have a bit more breathing room.

 

The gold market has been largely sideways for months now. The past several weeks have seen little in the way of sustainable movement as the market awaits the next FOMC meeting later this month. The Fed has been the source of much confusion and speculation in recent weeks and the meeting may provide markets with some more clarity about the central bank’s intentions.

 

The big question being pondered by investors right now is how far the Fed may be willing to go to tame inflation. Price pressures remain near 40-year highs. There have been some recent signs of inflation possibly having peaked already, however, and markets are paying close attention to them.

 

In addition to the inflation situation, markets are also watching the economy closely and monitoring it for recession. The U.S. could possibly be already in a recession, and some recent data from China may indicate that the world’s second-largest economy is not far behind. Worries over the possibility of a recession have been on the rise in recent months as the Fed has, thus far, stood its ground and continued to hike rates aggressively. More of that is expected this month when the FOMC meets again. Fed Funds are pricing in near even odds of either a 50 or 75-point hike this month.

 

The Fed is likely to finish out the year on the aggressive side, likely hiking rates until the end of the year. After a few more hikes are implemented, however, it becomes far less clear what the Fed may or may not do. Some have suggested the Fed is likely to take a pause in the new year, or even reverse course and begin easing policy as tighter conditions take their toll.

 

What this may mean for the gold market is also unclear. A looser Fed could, however, dent expectations for the dollar and treasury yields, bringing both down in the process. Any significant weakness in yields or the dollar could be bullish for gold and could potentially fuel a sustainable rally higher. The bulls could try to push prices higher in the near-term. Any moves higher right now would be suspect, however, as the market may currently be lacking the necessary ammunition for a sustainable run to the upside.

 

The next several weeks will see the gold bulls target the $1750 and $1800 levels. If able to produce a close above $1800, the bulls could find themselves in business for a run to the upside. The bears are trying to produce a close below the $1700 level and if able to do so could see prices embark on a fresh and significant leg lower.

 

The gold market is higher today as the non-farm payrolls data was a bit better-than-expected. According to the report, the U.S. added 315,000 jobs in August. Consensus estimates were looking for an increase of 295,000 jobs. While this headline figure is solid at first glance, the report did also contain some negatives. Both June and July were revised lower, with June seeing a sharp revision of over 100,000 jobs.

 

On the plus side was wage growth not growing as quickly as expected. Wages were up .3% in August while estimates were calling for a rise of .4%. The slower wage growth could potentially point to inflation easing a bit and possibly already having peaked. While this may at first appear to be bearish for gold, it could also be construed as being bullish if the Fed does not have as much reason to continue its aggressive tightening.

 

The Fed is still quite likely to tighten rates later this month at the next FOMC meeting. The Fed Funds rate is seeing heavy betting to be increased by another 75-basis points when the Fed does meet. Nearly all discussions of a Fed pivot away from the inflation fight have dissipated. Chairman Powell has tried to make it abundantly clear that the central bank sees inflation as the biggest risk to the economy and will look to get it back to desired levels regardless of the consequences.

 

Gold and other markets could find themselves trading range bound until the next FOMC meeting this month. Gold has seen its market volatility largely dry up in recent weeks, but that could change if the Fed does or says something unexpected in a few weeks when it meets again. In the meantime, the $1700 and $1800 levels are still technically significant.

 

The bears took prices below $1700 on Thursday but failed to maintain that action on Friday. The lack of follow through is nothing new for gold, however, and at this point may be expected. The bears do seem to have the edge, however, despite Friday’s market strength. This could lead to another test of $1700 next week If able to produce a close below this level, the bears would be in firm control and may embark on a fresh leg lower in price.

 

How low gold could possibly go is another question entirely. The long-term narrative for gold remains highly bullish. The U.S. and other nations are riddled with massive, unpayable debt. Paper currencies will continue to lose value as they have done for millennia. These and other issues may keep gold on the rise over the long run. Gold may become the only reliable and useful form of money left on the planet at some point. When it does, its value is likely to be sharply higher than current levels. Gold at $3000, $5000 or even $10,000 per ounce or more is not only not out of the question but increasingly likely.

The gold market is under some light selling pressure in early action Wednesday. The yellow metal has remained lower despite the ADP jobs figures coming in lower-than-expected. The ADP employment data showed a rise of just 132,000 jobs in August. Estimates were looking for an addition of 300,000 jobs.

 

Although some analysts may use the ADP data as an estimate of non-farm payrolls figures due Friday, the ADP data has never been much of a predictor. ADP has been on hiatus to revamp its methodology. The company now seeks to outline its own views of the economy rather than being an estimate of non-farm payrolls figures. Despite the miss in the data, gold showed little to no reaction.

 

The gold market is moving further away from the $1750 level as the bears gather some steam. The major test, however, would be at the $1700 level. If able to produce a close below this level, the bears could force more longs to exit the market and a fresh wave of sellers to enter it. This could, in turn, drive the price of gold sharply lower before it finds more stable footing.

 

The bigger jobs report will be released Friday and could be market-moving. If the non-farm payrolls figures also miss expectations by a wide margin, it could give the Fed much to consider in the weeks until the next FOMC meeting next month. If the data is in line or better than expected, however, it would almost certainly cement an aggressive rate hike from the central bank next month. Given some recent commentary from Fed Chairman Powell, it does not seem likely that the Fed will start to pivot away from fighting inflation anytime

soon. In fact, the Fed may now continue hiking rates aggressively until the end of the year, possibly putting key rates at or above the 4% level by year’s end.

 

Should the Fed maintain its aggressive policy stance, stocks and risk assets could eventually come under increasing pressure. If stocks do roll over again, gold could possibly see some of that capital coming into the market in the months ahead. The question may become, however, at what point does the opportunity cost begin to weigh on gold.

 

With rates around the 4% level at the end of the year, it seems unlikely any investors would be scared away from gold. Depending on what the Fed decides to do next year, however, that could change. The Fed may also not desire to hold rates at elevated levels for any longer than it has to to get inflation under control. Once it has accomplished that task, the Fed could then look to begin easing once again and gold could see significant buying once the threat of higher rates is removed. For the time being, the market may remain mostly sideways and maintain a range until more clarity is provided by the Fed.

The Fed Symposium has now come and gone, along with Chairman Jerome Powell’s highly anticipated speech this morning. The Fed Chief did not provide much in the way of new information, but did suggest the Fed was ready and determined to stay the course in its fight against inflation.

 

Powell reiterated the Fed’s thinking that inflation is the worst risk for the economy. He suggested that high inflation cannot make the economy work for anyone. While a recession is nothing to sneeze at, the dangers of a major economic slowdown may pale in comparison to the dangers that come with price pressures at their highest levels in some 40 years.

 

The FedWatch Tool did not show much, if any, changes to odds of a large Fed hike next month following the speech. Right now, odds are still eventually split for either a 50 or 75-point rate hike next month. Unfortunately for the markets, Powell did not seem to provide anything fresh or newsworthy in his speech but rather used it to reiterate the Fed’s previous statements. Without any forward guidance provided by the Fed, markets could find themselves second-guessing the central bank’s intentions in the months ahead.

 

The lack of clarity from Powell about how high the Fed could go or, perhaps more importantly, when it may decide to reverse course and start lowering rates again, could fuel market volatility in the fall. Powell did mention the easing of policy, though, and suggested the Fed would have to be very careful not to begin easing too soon.

 

Powell’s comments may be a bummer for policy doves. The Fed does seem intent to keep fightin inflation for the time being. That fight will likely last well into next year or beyond, and rates could find themselves going higher during that time than anyone previously anticipated. The gold market may find itself moving little, if any, up or down and could spend much of that time moving sideways as fresh inputs are awaited.

 

Volatility has largely dried up once again in the gold market, but that will not last forever. The $1700 and $1800 levels remain key technical points that could determine market direction in the months ahead. Neither the bulls nor the bears have been able to produce a close above or below these levels. Once they do, however, the yellow metal could continue in that direction for some time. Given the bullish long-term narrative for gold, odds may favor an upside move or a downside. If the market does try to move lower, the bears may find themselves running into a brick wall of willing bargain hunters.

As market volatility dries up further, gold may become increasingly likely to make a significant move in either direction. Once the metal does start to move again, it could continue in that direction for some time or until fresh market influences are seen,

 

Powell’s hawkish commentary is weighing on the metal today and may continue to do so until the Fed meets again next month.

The gold market is higher in early action Tuesday after starting the day off on a weaker note. Spot prices are up some $15 per ounce and are now back above the key $1750 level. The bulls have been reawakened today as some weaker-than-expected economic data could be changing market opinions about the Fed and its plans for interest rates. The latest piece of data, Flash PMI, fell more than expected and follows a weaker-than-expected new home sales figure.

 

Both weak data points could point to recession on the horizon, if the economy is not in one already. Fears of a recession may be guiding market action today. If more data is released and is weaker-than-expected, the markets could assume that a recession is increasingly likely. These fears have the potential to affect the Fed and its decisions regarding monetary policy. With still a few more weeks until the FOMC meets again, markets could see heightened volatility and possibly even some major selling of the data stream remains on the weak side.

 

The Fed will be together this week in Jackson Hole, Wyoming at the annual Fed symposium. While nothing new is expected from the Fed at this point in time, Chairman Jerome Powell is scheduled to deliver a speech Friday at the conclusion. Powell could provide some meaningful clues about the central bank’s plans and thought process going forward. The symposium has, in the past, provided investors with useful tips on the bank’s plans and outlook.

 

Regardless of what the Fed does or does not do next month, the economy is at risk for recession. While many were of the opinion that the Fed may begin to pivot away from the inflation fight next month, the Fed may do just the opposite. Powell has said that the Fed believes inflation to be the greatest risk to the economy. Not allowing inflation to become entrenched has been a priority for the Fed, and it may be unlikely to change its tune any time soon. Having already backed itself into a large corner, the Fed may now do what it can to preserve what little, if any, credibility it has left. Doing so means the Fed is unlikely to suddenly change its plans or to reverse course.

 

Odds are good that the Fed will hike rates at least a couple more times before assessing its actions and its options. This could coincide with the central bank thinking about a course reversal early next year. Perhaps one or two more aggressive rate hikes will prove to be more than markets can bear. If stocks and risk assets really begin to slide, one has to wonder if the Fed will be just as willing to stick it out and continue hiking while also shrinking its balance sheet.

 

Gold may remain in neutral until more is known about the Fed’s plans. The key areas of $1800 and $1700 remain in play. Whichever side is penetrated first, on a closing basis, could be the side of the market that sees price action for months to come.