Fed Minutes On Deck

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The gold market is slightly higher in early action Wednesday as investors await the release of the latest FOMC meeting minutes this afternoon. While there is no guarantee that the minutes will move markets, past meeting minutes have done exactly that and today’s have the potential to do so as well. The Fed has stuck to its plans for higher interest rates for some time now, and with inflation still being problematic there is little reason to think the central bank would now decide to steer away from more rate increases.

 

The Fed’s previous rate hikes are having an impact. The effects of higher rates may be seen in recent inflation data, much of which has shown a slight easing of price pressures in recent months. While the Fed still has significant work to do, it does appear to be moving the needle in the right direction. A hawkish-sounding Fed today could set off some alarm bells while a more dovish-sounding Fed could fuel a rally in stocks and risk assets. The gold market could also benefit from a dovish Fed but it could also even find a way to rally if the Fed is more hawkish.

 

The gold bulls and bears are locked in a tight battle currently. The market is in a weak trend lower, giving the bears a slight advantage. The bulls need to take the metal back above the $1900 level and then challenge the $1950 area. The bears will look to take the market down to $1800 and if successful will then look for a challenge of the $1700 level. Until the bulls or the bears establish control of the market, more sideways price action may be seen.

 

In outside market action, the dollar is slightly lower today but may not stay that way if the Fed signals more rate hikes to come. The dollar has been a major obstacle for the gold bulls in recent months and any further strength in the dollar may keep the bulls from extending the rally. The higher the dollar goes, however, the harder it may eventually fall. If more counties look to dump dollars in the years ahead, the greenback could be hit by a tidal wave of selling that could take it sharply lower from recent levels. If such a scenario were to develop, the gold market could see a substantial upside as the dollar sees a significant downside.

 

Recent stronger-than-expected data may be soothing recession fears currently. It is not soothing to those concerned about higher interest rates, however, and the Fed may decide to keep rates higher for longer as it suggested previously. This theme is likely to be a major market catalyst for the months ahead and could set the stage for either a significant rally in the price of gold or a significant and sharp downturn in the price of the metal. Both camps are prepared for whichever materializes and it may now just be a game of waiting until it does.

Gold Higher As Markets Await Powell Speech

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After starting the day a little stronger, the gold market has gained momentum. Gold is now higher by nearly $10 per ounce as markets await a speech by Fed Chairman Jerome Powell at mid-day. The Powell speech is taking place today at an economic club in Washington, D.C., and could provide some clarity on the Fed’s thoughts following a much stronger-than-expected jobs report last week. That jobs data could force the Fed to remain hawkish even as markets are now expecting more dovishness from the central bank. Markets may have misread Powell last week, focusing their attention on his disinflation remarks and not his talk of more work needing to be done.

 

Regardless of what Powell may say today; the markets will remain focused on the Fed for the months ahead. The Fed has toned down its pace of rate hikes, raising rates by just 25 basis points last week rather than 50 or 75. The Fed could pick up the pace of rate hikes if it feels it to be necessary, however, while it could also elect to pause or even stop hiking rates altogether if it thinks the job has been completed. Recent inflation data has pointed to a slowdown in price pressures. Whether that slowdown is enough to modify the Fed’s thinking is another matter entirely and may be debated as 2023 gets rolling. The Fed has previously suggested rates may need to remain higher for longer, and for the time being there has been nothing to suggest it has changed its mind about that.

 

The gold bulls have done a good job thus far of keeping prices elevated. The bulls did lose the $1900 level recently, however, but the bears have been unable to follow through so far. With spot gold at $1876 today, the bulls remain well within striking distance of the $1900 level. The bears have their work cut out for them. The bears first must produce a close below the $1800 level. If able to do so, the bears would then likely look for a challenge of the $1700 area or the original upside breakout point from several weeks ago. The bears have a lot of room to cover to get anything significant going to the downside, and if they are unable to do so the bulls are likely to remain in firm control of the market.

 

The gold market may also find itself maintaining a trading range again, albeit a higher range. The bulls seemingly have reason to take the market higher, but they could take their time doing so. A significant pullback, in fact, may not only be necessary for the market to sustain higher levels but also healthy. Any sharp declines in gold are likely to be bought aggressively. For the time being; the bulls remain in control of the market and the trend is still higher.