Bulls Buying The Dips

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The gold market is higher in mid-day trade Tuesday as investors position themselves ahead of tomorrow’s FOMC meeting announcement on rates. Bulls stepped into the market earlier in the session to buy the dip seen Tuesday morning, and the market is now higher by nearly $7 per ounce as the pit session prepares to close. Trading has been somewhat muted across markets this week as investors prepare for tomorrow’s FOMC announcement and press conference. Expectations are for the Fed to raise rates by 25 basis points rather than the previous 50 or 75 points.

 

The Fed announcement on rates could be market-moving tomorrow. The 25-point hike is likely to do little to move markets, but the Fed’s commentary afterward could be very telling about its plans moving forward. If the Fed is seen as being more dovish, it could potentially send gold and stocks higher as hopes for a reversal on rates may increase. If the Fed is viewed as being more hawkish, however, the markets could be sold off heavily. Fed Chairman Jerome Powell is likely going to be very careful in what he says and how he says it tomorrow, and the markets could potentially come away with nothing new to go on.

 

The Fed’s plans are certainly a major factor for gold in the months ahead, but they are not the only factor. The war in Ukraine, the potential for a Chinese invasion of Taiwan, the dollar, and other factors may all play a role in how gold performs in the months ahead. Even with a more hawkish-sounding Fed, the gold market may see a quick rebound from any selling as investors look to buy the dips. The upcoming U.S. Presidential election may also play a role for gold as the election gets closer.

 

For the time being, the bulls will have to buy based on what they already know. The bulls have thus far done a good job of holding the market above the $1900 level. The next major bullish target is well within striking distance at this point, with the $1950 area only about $20 away. If the bulls can produce a close above $1950, the market could be poised to attempt previous all-time highs. If the Fed were to signal a course reversal on rates later this year, the gold bulls could not only rapidly reach previous all-time highs but could start making new all-time highs in the process. A dovish signal from the Fed could not only suggest a move towards previous all-time highs but could make $2500 or $3000 per ounce gold a reality in the months ahead.

 

The bears have their work cut out for them. They must first produce a close below $1900, followed by a close below $1800. The real test for the bears would likely not come unless the market were to test the upside breakout point around $1700. A close below that could send the market sharply lower, with little in the way of support until the $1500 level is reached.

Gold Sitting Tight Ahead Of FOMC

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The gold market is sitting tight ahead of the upcoming FOMC meeting announcement this week. The Fed meeting begins Tuesday and concludes Wednesday afternoon. It is widely expected that the Fed will raise rates again, although by just 25 basis points this time around. Trading in gold and other markets may be more dull and light this week as the markets await the Fed’s decision and the Jerome Powell press conference after. Both gold and stocks are seeing slight corrective pullbacks Monday, with gold down a few dollars per ounce and stocks modestly lower in early afternoon action. The trends in both markets remain higher, however, and today’s dips could prove to be bought as the day progresses.

 

In the biggest data point of the week, the Fed’s commentary will likely be far more important than the decision to hike rates by 25 points. It is currently expected that the Fed will continue to raise rates through the first half of the year. Despite some recent inflation data pieces showing inflation is starting to moderate, the Fed will want to make sure the job is done before it begins cutting rates again. What that might mean specifically is anyone’s guess, but it seems unlikely the Fed will begin easing rates until the second half of the year or sometime next year. Markets may know and understand this already but are eagerly awaiting the signal from the Fed that easing is on the way. Once the Fed provides that signal, it could provide the gold bulls with a green light to take prices even higher, possibly into the new all-time high territory.

 

If the Fed hikes by 25 points this week, it is unlikely to have a major impact on markets. If the Fed does not hike rates or hikes by more than 25 points, then things could get interesting. A stronger rate hike could signal to markets that the Fed is still very concerned about inflation. This could lead to selling across asset classes, with both stocks and gold potentially being hit hard. If the Fed decides not to raise rates this week, it could signal a more dovish line of thinking by the central bank. This could provide the gold and stock markets with some bullish activity that could see prices rise substantially.

 

The next several months will likely bring more of the same. The markets are awaiting further clarity from the Fed, but the Fed may not provide enough clarity until it signals a policy change. While such a change could come at any time, it is unlikely to arrive in the next few months and would almost certainly come in the second half of the year. In the meantime, the bulls will try to avoid a close below the $1900 level while the bears will look to produce one. The next upside target for the bulls is $1950 on a closing basis.

Patience Required

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There seems to be an increasing amount of talk regarding gold and its ability to return to all-time highs. The yellow metal has had a strong run over the last several weeks and is up over $300 per ounce since November. The reasoning behind gold’s strong performance seems clear enough and many investors feel it is likely to make another critical jump in the weeks ahead. The metal has already taken the $1900 level on a closing basis and thus far has been able to hold this level on the chart. Markets do not typically go straight up or straight down, however, and the gold market is no different. The metal may need to see a significant pullback before the bulls can take prices sustainably higher. When such a pullback could occur is anyone’s guess. Given the recent upside in the market, however, now or very soon seems to make a great deal of sense.

 

Many investors have missed the gold rally in recent weeks. The metal spent months in a tight trading range before finally breaking out at the $1700 level. What is to say that the metal could not spend another several month’s trading sideways, only in a higher range? The answer to that question is nothing. The markets are awaiting the Federal Reserve’s decision on rates next week before making any big moves. The decision on rates isn’t even the most important thing. What is important is what the Fed says about its plans going forward. The central bank does not want to overtighten and be forced to begin easing again too soon. The Fed is likely, therefore, to take its time rising rates to the desired level in the first half of the year. This fits into the Fed’s plans to leave rates higher for longer.

 

Although the Fed is unlikely to provide any clues about its easing plans, it is likely to signal a move towards easing possibly in the second half of the year. Inflation data has been coming down, and although it is still very elevated, it is moving in the right direction. This would seem to suggest that the Fed’s actions are working. Now forced to walk a tightrope, however, the Fed will look to be especially careful as it implements its desired policy. That caution could be reflected in the central bank’s commentary over the next few months as it may look to provide little if any, useful information for investors.

 

The market may remain range bound until more clarity is seen from the Fed. The bulls need to produce a close above resistance at the $1950 level. The bears are looking to produce a close first below the $1900 level and then at the $1800 level. The metal could pull back to the $1800 level before finding more solid ground on which to rally. Patient, long-term investors understand this and may be willing to step in and buy the market on any significant dips. “Good things come to those who wait,” is an important saying for gold investors and could prove to be very true for the bulls.

Gold Lower On Profit Taking And Higher Dollar Yields

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The gold market is seeing some moderate selling pressure Thursday as spot prices are down nearly $17 per ounce in early afternoon action. In addition to rising yields and a stronger dollar today, the gold market is also likely being sold off on some better-then-expected economic data released this morning that falls firmly into the hawkish policy camp.

 

The biggest data point of the day was the advance estimate of fourth-quarter GDP. The GDP reading was up by 2.9%, slightly higher than market expectations for a rise of 2.8% year-over-year. The figure was a bit softer compared to Q3 GDP data, which saw a rise of 3.2%. Other data released Thursday was also upbeat and could increase expectations for the Fed to remain more on the aggressive side when it comes to policy. The next FOMC meeting is taking place next week, and current expectations are for the central bank to raise rates again, although by 25 points this time around. A 25 point hike will show the Fed’s willingness to keep taking rates higher, but also shows their acknowledgement of what raising too rapidly could do to the economy. Concerns over a recession this year have already increased substantially and could rise further if the Fed keeps trying to put on the brakes.

 

The threat of a recession in 2023 may be the primary driver for gold in the year ahead. The Fed knows it has to walk a fine line, and the slightest misstep by the central bank could allow inflation to run rampant for longer or could send the economy straight into a major recession. Fears over a recession may keep the Fed a bit more flexible when it comes to raising rates, and the Fed may look to take longer to get the terminal rate to the desired level. Of course, further data pointing to a slowdown in inflation could give the Fed reason to pause. While a pause by the Fed may be a distinct possibility, a reversal by the Fed seems unlikely at this point. Yes, inflationary data has come down a bit. Inflation still remains far too high, however, for the Fed to start easing rates in good conscience. Sometime during the second half of the year, the Fed could potentially signal towards a timeline for easing. Easing is unlikely to begin anytime this year, however, and would most likely not be seen until early 2024 at the soonest.

 

The path of least resistance in gold may remain higher as long as easing is expected at some point down the road. The bulls have been able to maintain the market above $1900 for several days now, and the longer they do so the tougher any downside may become for the bears. The bears will first look to produce a close below the $1900 level while the bulls will target a close above $1950.

More Profit Taking

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Wednesday morning is seeing more profit-taking in the gold market. The metal is already off the lows of the session, however, down less than $6 per ounce in mid-morning action. The yellow metal may be taking some heat today as the key outside markets have assumed a bearish posture. Crude oil is weaker today while the Dollar Index is stronger. Despite these bearish markets, however, some bulls have already stepped in to buy the dip today, and do not be surprised if gold ends the session in the green rather than the red.

 

The gold market may now be in a holding pattern of sorts until the next FOMC meeting next week. The metal has reacted to the Fed’s commentary in a dovish manner, but the central bank’s commentary can and does change quite frequently. Whether the gold bulls can continue the recent rally may very well depend on what the Fed has to say following its upcoming meeting. It is widely expected that the Fed will raise rates again, although by only 25 basis points this time around. Markets are far more interested in what the Fed has to say about further hikes as 2023 gets rolling. If the Fed strikes a dovish tone in its commentary and outlook, the gold bulls may see that as a green light to drive prices higher. If the Fed sounds more hawkish, however, the bulls could see that as a sign to bail and the market could be sold off heavily.

 

The Fed has already alluded to rates having to remain higher for longer. Just how high remains a big question, as well as for just how long. Some analysts have already suggested the Fed could look to start easing in the second half of the year. Others feel that a pivot by the Fed won’t be seen until sometime in 2024. Either way, markets will be looking forward to the day the Fed signals a reversal. That reversal could also be a primary factor for gold reaching new all-time highs. The market is already within striking distance of previous all-time highs, and a significant catalyst could send the metal back to those levels or beyond.

 

In addition to the Fed and its plans for rates this year, gold may also be affected by the debt ceiling. The ceiling was reached again last week, and the Treasury Department has taken some extraordinary measures to allow the country to keep paying its bills. Once those measures expire, however, there could potentially be big trouble if politicians are unable to reach a deal in time. With the U.S. debt now standing over $31 trillion, many wonder how the nation might even attempt to pay down its debt or if the debt is already unpayable. Whether the debt ceiling is extended or not, the issue of massive debt may keep buyers in the gold market as concerns over an eventual currency debasement or debt default mount.

Gold Hits 9-Month High

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The gold market hit a fresh nine-month high earlier Tuesday before pulling back. The metal is being powered by positive chart structures, safe-haven demand and geopolitical risks as it continues to maintain trade above the $1900 level. Despite having reversed course this morning and now trading about $9 per ounce lower on the session, the path of least resistance for gold remains sideways to higher. The bears have a lot to prove if they want to reverse the market’s course over the long-term. With no clues about a market top having been reached or even close, the bulls will likely continue to buy on any significant dips within the market.

 

As the next FOMC meeting rapidly approaches, markets may get increasingly jittery over what the Fed may or may not do. It is widely expected that the central bank will hike rates again. This hike, however, will likely only be for 25 points rather than 50 or 75. Recent inflation data has pointed to a slowdown in price pressures, although there is still much work that needs to be done. The slowing in the data may give the Fed more wiggle room, however, as to how fast it needs to raise rates to keep inflation from increasing further. With some more room to work with, the Fed may be increasingly likely to take more of a wait-and-see approach to policy.

 

The Fed and monetary policy may be the primary drivers for gold in the months ahead, but they are not the only market catalysts. Several other issues, including sovereign debt, the upcoming Presidential election and the war in Ukraine may also all factor into gold’s fortunes. The political scene in the U.S. may become especially heated as the debt ceiling is being challenged yet again. The U.S. Treasury Department has bought leaders a little bit of time through some extraordinary measures, but those measures will soon expire and the nation could find itself unable to pay its bills if a deal is not struck between the two major political parties.

 

As the war in Ukraine rages on, there have been little to no signs of a slowdown. Worries now have gone from Russia to China as concerns mount that it could potentially look to invade Taiwan sometime soon. A Chinese invasion of Taiwan would almost certainly invite U.S. involvement, and such a scenario could very well lead to the Third World War beginning. As the globe waits to see when Russia may pull out of Ukraine and if China does invade Taiwan, investors are likely to keep gold from falling too far. With so many potential issues in the mix, gold may remain fairly buoyant until more clarity is seen. For the time being, that may keep the path of least resistance in gold higher and could keep willing buyers jumping in on any significant dips.

 

 

Gold Seeing Routine Correction

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The gold market did not do much on Monday. The spot market is lower in mid-afternoon action by less than $1 per ounce. The profit-taking comes as no surprise following the metal hitting an eight-month high last week. Also possibly a factor in today’s market action was a headline in a prominent financial newspaper that suggested the Fed would “ Set a milder course” on rate increases. The author of the article is a well-known reporter recognized for getting Fed members to speak with him directly. The next FOMC meeting is quickly approaching, and the markets are finding themselves questioning the Fed’s plans for the year ahead. Previously, it was widely thought the Fed would maintain its aggressive pace of rate hikes until the job was done. Now, however, inflation data has been showing some slowing that could give the Fed reason to think twice before hiking again aggressively.

 

The next rate hike will likely be only 25 basis points. Of more interest to the markets will be the Fed’s commentary and outlook. If the Fed signals it intends to slow the pace of hikes or even take a pause, gold and risk assets could get a major boost higher. If the Fed signals it plans on staying the course, however, it could be bearish for the metal and for risk assets and could send markets lower.

 

The gold bulls have done a good job in recent weeks taking the market higher. Whether the move up is sustainable is another question, however. The bulls have thus far been able to hold the market above the $1900 level, well above it in fact. If the bulls can maintain their recent bullish posture, the market could see a fresh wave of buyers enter, taking prices to the $2000 level in a short period. If the bears can produce a close below the $1900 level, then a push toward the $1800 level could be seen. To get anything of substance going, the bears need the market below the upside breakout point at $1700.

 

The gold market is highly dependent on the Fed currently and what the central bank has planned for 2023. Any clues provided by the Fed members may go a long way toward giving the market some sustainable fuel to drive it higher or lower. The path of least resistance remains higher for the time being. Any significant dips in gold may be bought aggressively until proven wrong. The gold market may also benefit from some other key factors that could potentially take it higher. These issues include the recent hitting of the debt ceiling, the war in Ukraine, the upcoming U.S. Presidential election, and more. Any of these issues could potentially move the gold market, although the Fed remains the primary catalyst for market movement.

U.S. Debt Ceiling Hit, Now What?

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As expected for some time now, the U.S. hit its debt ceiling today, forcing the Treasury Department to implement extraordinary measures to keep the nation’s bills paid. As the fight over debt rages on, both political parties will look to take advantage of the situation in the weeks ahead. The U.S. debt ceiling is just another dog and pony show that will be utilized by political powers to attempt to sway voters. In all likeliness, some type of agreement will be hammered out sooner rather than later. That agreement will almost certainly again just kick the can down the road, leaving the root cause of the problem for someone else to deal with at another time.

 

The U.S. dent now stands at over $31 trillion. That is $31 trillion dollars, an amount that cannot be fathomed by most individuals. It would reportedly take almost a million years to count to 31 trillion to put the figure into some perspective. With the interest meter always on, how can the U.S. ever possibly repay such a massive amount of debt? The answer to that question could be the key to gold’s long-term fortunes. Most experts believe there is only one way for the country to repay such an amount of debt, and that way does not bode well for the dollar or the economy. Currency debasement is a term that has been thrown around in recent years, oftentimes from individuals who are considered to be “crazy,” “nuts” or otherwise deranged. Those individuals may have the last laugh, however, as the U.S. is rapidly running out of gimmicks to pay its bills on time.

 

A U.S. default on its dent is almost too crazy to consider. The global implications of such a scenario make it almost impossible to even imagine. A default is a legitimate threat, however, that needs to be avoided at all costs. A U.S. default would cause borrowing costs to go through the roof, and could be the first stage of a global recession the likes of which has not been seen before. Not wanting this to happen, the U.S. will likely come up with an alternative solution to keep paying its bills while avoiding worldwide panic. A currency debasement may be the only solution available.

 

Lowering the value of the U.S. Dollar may be good for the government, but it is not so good for you. If every dollar you currently own bought tomorrow only half of what it buys today, your supply of money is basically cut in half. That is exactly what could happen if the U.S. elects to debase the dollar. The currency is already in some serious trouble on the world stage as nations look to move away from it. Its status as the global reserve currency of choice is already under attack as other nations such as China look to get a seat at the global power table. Whatever the case may be, the dollar appears to have some tough times ahead of it. As the dollar declines, so does your purchasing power and your wealth.

More Profit Taking Wednesday

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The gold market is slightly lower in mid-day action Wednesday as short-term traders continue to book profits. Not helping the bulls either is the stronger dollar today and crude oil having backed off its high from earlier in the session. It has been a busy day for economic data, with the latest readings on the Producer Price Index and retail sales both being released. The Producer Price Index was probably the most heavily watched report of the day. It showed inflation easing further, coming in at up 6.2% year-over-year. That was significantly lower than the November report, which showed a rise of 7.3%. It was drastically lower than the March 2022 report which showed a rise of 11.7%. While inflation is still very high and nowhere near the Fed’s desired 2% annual target, it is declining steadily in recent months.

 

The softer inflation data may mean the Fed has done some things right and that its rate hikes are having the desired impact. Much work remains to be done, however, and the Fed is likely to keep hiking rates albeit at a slower pace through the first half of the year. The next rate hike in a couple of weeks will likely see a rise of just 25 basis points compared to the 50 and 75 basis point hikes markets have become accustomed to in recent months. The Fed has said it feels rates may need to remain higher for longer, and it therefore may take a slower approach to get rates to the needed levels.

 

The gold market may remain quite vulnerable to the Fed and any changes it makes in its policy objectives. Further rate hikes appear to be priced into the market already. A surprise larger-than-expected rate hike could throw the bulls off track, however, at least temporarily. Should the Fed elect to quit raising rates or even signal a pending rate reversal, the gold market could skyrocket higher. In the meantime, the trend for gold remains on the upside and that is the path of least resistance. The bulls have held the $1900 level so far Wednesday and their next target is resistance at the $1950 area. The bears need to produce a close below $1800 before getting excited. Until proven otherwise, any significant dips in gold are likely to be aggressively bought.

 

The gold market may find itself staying sideways to slightly higher over the next few months until more is known about the Fed’s plans. Of course, any major inflation data changes could also impact the yellow metal in the meantime. If the bulls can take out the $1950 level on the topside, the metal could be well-positioned to challenge previous all-time highs. A failure to take this level out could be indicative of the rally running out of steam and the market possibly reversing course. Given the current economic and geopolitical landscapes, a reversal seems very unlikely.

A Routine Pullback Thus Far

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The gold market saw some selling pressure on Tuesday as investors returned from the long Martin Luther King Jr. holiday weekend. At lunchtime Tuesday, gold is down by nearly $10 per ounce, but is holding above the key $1900 level. After hitting a fresh nine-month high overnight, gold saw fit to decline during the day session. A moderate decline such as that seen Tuesday is nothing unusual and may even signal health within a market that is in an uptrend as gold is. Some more bad data out of China may also be playing a role today, as Chinese economic growth registered a paltry reading of 3% for 2022. That was the slowest Chinese growth rate since 1976 and may show just how much of an impact Covid has had on China and the world.

 

As the globe’s second-largest economy, China’s growth rate for 2023 will become increasingly important as the world looks to shift back into a high growth mode. If the Chinese economy continues to sputter or if areas of China again become closed due to Covid lockdowns, the outlook for the global economy in the year ahead may deteriorate significantly. Slowing global growth may yet be another factor the Fed will have to consider as it decides whether to continue raising rates as it has done the past year. With concerns of a recession already elevated, the Fed may elect to tread carefully if Chinese growth does not accelerate.

The gold bulls have a 2.5-month uptrend at their backs to help them push the market higher. The bulls will try to target resistance at the $1950 level next. A close produced above this key area may set the stage for a rapid rally higher that could potentially put gold within striking distance of previous all-time highs. The bears have their work cut out for them. The bears must first produce a close below the $1800 level. If able to do so, they would then target the recent upside breakout point at $1700. A close below $1700 could be very bearish for the market, as it may not find much to stop selling before hitting the $1500 level. The bulls are likely to remain in control, however, as hopes for an increasingly dovish Fed may be on the rise.

 

The FOMC meets again in two weeks. The Fed is unlikely to hike as it did previously, however, and a 75 or 50-point hike is unlikely. The central bank will likely raise rates by 25 basis points to keep them rising but not do so in an overly hawkish fashion. The Fed has said that rates may need to remain higher for longer, and it may no longer feel such a rush to get inflation down now that some key inflation data pieces have shown a slowdown in price pressures. On the other hand, if inflation data does show a pick-up in the weeks and months ahead, the Fed may keep raising rates until the terminal rate is above 5.25% or even more. Such rate levels could cause the U.S. economy to enter recession, however, and the Fed will almost certainly try to avoid taking rates to levels high enough to cause a recession.