Gold Sees Moderate Demand After Russian Revolt

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The gold market did not see much bullish action after the weekend’s events in Russia. Spot gold is up by a few bucks per ounce in early afternoon action and any haven demand for the metal could be characterized as mild. The aborted insurrection in Russia over the weekend has raised some key concerns, including calling into question the stability of the nation’s armed forces and its leadership. As a nuclear power, any signs of a revolt in Russia could be market-moving and could cause serious anxiety all over the globe. President Putin appears to be seeing his once-powerful authoritarian grip on Russia loosening significantly. This may destabilize its military and will be closely monitored by countries all over the globe.

 

The gold market has several major issues it must keep an eye on. First, there is the issue of geopolitics and the potential for armed conflict. The war in Ukraine continues, and there are increasing concerns over a Chinese invasion of Taiwan. Although the U.S. has thus far been able to stay out of the war in Ukraine, an invasion of Taiwan would almost certainly drive the U.S. to take up arms and protect its ally. A war between the U.S. and China could set the stage for a global Third World War in which China, Russia, and several other actors are involved. Such a war has the potential to become nuclear, and therefore is cause for great concern.

 

In addition to the state of global geopolitics, the gold market is also paying close attention to the Federal Reserve and interest rates. At its previous meeting earlier this month, the Fed elected to hold off on another rate hike for now anyway. The Fed did suggest, however, that at least two more hikes would be seen this year as it continues to try to get inflation under control. If and when the Fed does signal it is approaching or at the end of its current tightening cycle, the markets may breathe a sigh of relief. Just because the Fed may stop raising rates does not mean, however, that it will begin aggressively lowering them either. The central bank may look to maintain current rate levels for some time, possibly years, or until inflationary pressures subside further. Inflation has declined in recent months, but it remains far beyond the Fed’s desired target level of 2% annualized.

 

The gold bears remain in control on the daily chart. The market has been trending lower for several weeks now, and until reversed, the bears may try to push prices lower below key support levels. The $2,000 level remains a key target for the bulls. If they can produce a close above this level, more bulls may jump into the market and momentum could take gold significantly higher in a short period. The bears are targeting a close below the $1,900 level. A close below this area could suggest more downside is on the horizon and could attract more short sellers into the market.

Gold Remains Range Bound

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The gold market remains stuck in a tight trading range as it has for weeks now. The market is stuck sideways may not be a negative, however, and could be a big positive. Recent data from the CFTC showed that the amount of speculative interest in gold has declined to the lowest level in three months. The shift in gold positioning was not a huge surprise, however, as investors awaited the latest decision on rates from the FOMC. That meeting took place last week,  and the Fed elected to stay on hold but suggested two more rate hikes would be seen this year. Despite not raising rates again last week, the Fed’s language was decidedly hawkish.

 

As the number of bullish gold specs declined, the gold market remained in a tight range from $1,950 to $1,980. The Fed’s hawkish pause last week did cause gold to fall, testing $1,930 in the process. The metal did not stay down for long, however, and shortly after testing $1,930 was back in its previous trading range. The price action seen in gold would seemingly suggest that there is still significant bullish interest in the market, but investors are perhaps being more tactical about how they go about building a position.

 

The gold market is possibly seeing some bullish support from a lack of faith in the Fed’s bullishness on interest rates. Despite suggesting that multiple rate hikes will be seen this year, some may be doubting the Fed’s desire and determination to raise rates. Some even feel the next Fed move may be more likely to be a rate cut rather than a hike. This opinion may increase if worries over a recession continue to mount in the months ahead. Whatever the case may be, however, gold has done a good job of holding onto some recent gains and has thus far not appeared overly vulnerable to the downside after a lack of upside follow-through. Of course, the longer gold is unable to mount a fresh offensive, the more likely it may become that the bears take control of the market.

 

The bulls need to show some strength before speculative interest in the metal increases again. That means the metal may need to attack the $1,985 level before attracting fresh bulls into the market. A close above the $2,000 level would almost certainly reignite the bulls, and the market could then be off to the races. A close below the $1,950 level may have the opposite effect, attracting fresh bears into the market who may push the metal for a test of the $1,900 level.

 

The market has many potential catalysts for a move up or down. The Federal Reserve and its plans for interest rates, the war in Ukraine, the potential for a Chinese takeover of Taiwan, and other factors may all influence the gold market in the months ahead.

Gold Down As FOMC Looms

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The gold market was down on Monday as bearish outside market action and the looming FOMC meeting took a toll. The metal has been hit by a trio of bearish outside markets on Monday, as the dollar moved higher, treasury yields surged and crude oil declined. The market was quiet on Monday as investors await the latest Fed decision on rates and as key inflationary data is awaited.

 

The FOMC meeting is the highlight of the trading week. The meeting b begins on Tuesday and concludes on Wednesday. It is widely expected that the Fed will take a pause in its rate hiking cycle. Last week’s jobs data may boost the thinking that the Fed will continue with another rate hike this week. Either way, the market will be very interested in hearing the Fed’s thoughts and what it sees ahead for rates and the economy. Key inflationary reports are also set for release on Tuesday and Wednesday. The latest readings of the Consumer Price Index (CPI) and the Producer Price Index (PPI) may provide solid clues about inflation and whether it is continuing to ease. An easing of these data points may allow the Fed more room to pause on further rate hikes. Stronger-than-expected data points may do the opposite, however, and could give the Fed reason to continue hiking rates aggressively.

 

The gold bulls have still been unable to produce a close above the $2,000 level in recent weeks. This level is the next major bullish target and could give the bulls more reason to take the market higher if breached. The bulls remain in control of the market during this period of choppy trade, but that control has been weakened significantly in recent weeks. The bears need to take the market below the May lows around $1,949 on a closing basis, followed by a close below the $1,900 level. Failure to do so may result in ongoing choppy price action before the bulls are able to lift the market in a sustainable fashion.

 

Signs of cooler inflation this week may not only affect the gold market, but could also have a significant impact on stocks. If price pressures are continuing to cool, hopes for  Fed rate reversal may increase. This could, in turn, provide equity markets with a solid boost. Hotter inflation may have the opposite effect, however, and could drive the stock bears into action. This week’s inflation data will also form opinions about the Fed’s plans in the months ahead. A more dovish outlook and Fed could see equity markets rally while an increasingly hawkish Fed could have the opposite effect. Investors will be looking for any clues either way about the Fed’s plans and what it sees for the economy in the months ahead.

 

The longer that gold spends sideways, the more bullish it may become. The bears are likely feeling far more pressure to move the market compared to the bulls, and a lack of a significant leg lower could set the stage for a bullish rally in the weeks to come.

Gold Jumps As ISM Sinks

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The gold market was off to a tough start this morning as the new trading week got underway. Dollar strength was keeping the bulls at bay, and allowing the bears some wiggle room to the downside. Recent data, however, pushed a jump in gold prices that took the metal higher by several dollars on the day. The most recent reading of ISM Services PMI declined to 50.3 in May. This reading was lower than anticipated, and also lower than the April reading of 51.9%. Consensus estimates were looking for a reading of 52.6% for May. The gold market saw a solid bounce off of support in the $1,950 area and is now trading around $1.956.

 

The data stream may become increasingly important as the next FOMC meeting approaches at the middle of the month. At this point, some feel the Fed is likely to signal a pause in its rate hiking campaign. Others, however, feel the Fed may remain hawkish and could avoid signaling any such pause to higher rates. Whatever the Fed does or does not do, it does have the potential to move markets. Although business conditions may currently be considered stable, there may be increasing concerns over a slowing economy. This slowdown could lead to a recession, and recession has been a worry for some time now. If the Fed elects to take a pause, it could alleviate some of the recession worries. If the Fed decides to stay the course, however, it could exacerbate those worries and fuel a global recession in the months ahead. In  reaction to the ISM data, markets are pricing in a very high likelihood of the Fed doing nothing at its meeting next week.

 

Other areas of the economy are also losing momentum. The employment index fell into contraction territory last month with a reading of 49.2%. Readings below 50 are considered to show contraction while readings above 50 signal expansion. Despite much of the weaker-than-anticipated data in recent weeks, the rate of inflation has been coming down. Inflation remains quite high, however, and is still well-above the Fed’s desired target of 2% annually. With inflation moving in the right direction, it could give the Fed even more reason to consider taking a pause on its hiking campaign. For the time being, the markets will monitor the data stream and try to guess what the central bank will do at its next meeting and at the meetings to follow.

 

The gold bulls remain in charge on the daily chart. Their control has largely faded in recent weeks, however, as they have failed to maintain a run above the $2,000 level. That remains the next target for the bulls, and a close above it could send the metal sharply higher quickly as momentum players and trend traders jump on board again. The bears will look to take the market below the May lows around $1,950 and then the $1,900 level below.

Big Data Dump Driving Gold Higher

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Thursday has been a very busy day for the U.S. markets. With a heavy slate of economic data hitting the wires this morning, the gold market is on the move after being up just marginally earlier in the day. Data released today includes Weekly Jobless Claims, the ADP jobs report, productivity and costs, U.S. Manufacturing PMI, Global Manufacturing PMI, auto industry sales, monthly chain store sales, ISM business manufacturing data, construction spending and weekly liquid energy stocks.

 

U.S. manufacturing edged lower again in May. The ISM index showed a reading of 46.9%, slightly worse than consensus estimates of a 47% reading. The May figure was also weaker than April’s reading of 47.1%. The seventh straight month of declining manufacturing data may lend credibility to those fearing a recession is on the way. The employment index reported another month of expansion, however, and that is what the gold market may pay more attention to. This could be viewed as a preview of tomorrow’s non-farm payrolls data for May and could give the Fed more reason to continue hiking rates aggressively rather than taking a breather.

 

The big question now is whether or not the Fed will elect to pause its rate hikes when it meets later this month. The slumping manufacturing data would seem to suggest a pause is likely, while strong employment data may keep the Fed lifting rates further. Any signs that the Fed is going to take a pause could be bullish for gold, while any indications that the Fed is going to keep raising rates may be bearish for the metal. The gold bulls have bought into the market in recent months despite sharply higher interest rates, but at some point, that enthusiasm will dissipate if rates continue to march higher.

 

The gold bulls have been unable to maintain trade above the key $2,000 level thus far. The market remains close to this area, however, at just $20 lower than this point as of today. If the bulls are able to produce a close above the $2,000 level, the market may take off again and probe further upside. A failure of the bulls to overtake this level may lead to more bearish price action. Although the market has thus far failed to hold $2,000 per ounce, it has not fallen far below this area. The longer the bulls are unable to press forward, however, the greater the likelihood that the bears will eventually drive prices lower.

 

The bulls remain in control for the time being. The bulls have largely faded in recent weeks, however, and the market is now trending lower on the daily chart. The $1,900 and $2,000 levels are the next major tests for the bulls and the bears. Whichever level is broken first, on a closing basis, will likely determine the market’s direction for the months ahead.