Gold Holds Near Session Highs After Rate Hike

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The gold market is holding strong and near-session highs following the latest Fed rate hike. The Fed just raised its main interest rate by another 25 basis points, putting interest rates at a 22-year high. The markets showed little initial reaction to the rate hike, which was fully expected to happen. Markets are likely to be far more interested in Fed Chief Jerome Powell’s remarks at the press conference that follows the rate decision.

 

Markets will likely now be wondering whether Powell and the Fed will continue to lean hawkish or if they ease up a bit given the weaker recent inflation readings. Powell’s commentary could certainly be market-moving, and even if not today, his comments may send gold and stocks moving up or down in the days ahead. The reaction, if any, by gold, stocks, and other markets is likely to depend on whether more hikes are expected in the coming months. The Fed has now raised rates 10 times in its efforts to combat runaway inflation, and despite still being over its desired target, inflation has come in quite a bit in the last few months. If the Fed signals it is comfortable with rates where they are at, gold and markets could see a rally. If the Fed gives the impression that more hikes are still to come, gold and other markets could come under renewed selling pressure.

 

The Federal Reserve and its plans for interest rates are major factor for gold and other markets. They are not the only factor, however. The ongoing war in Ukraine may also play a role. Increased tensions between the U.S. and Russia could keep buyers interested in gold, and any further geopolitical issues could elevate the market substantially. Worries over a nuclear attack, Chinese invasion of Taiwan or other acts of violence may keep buyers looking to gold to protect their holdings. If the number of unknowns should rise around the globe, it could keep gold on the offensive.

 

The gold bulls have the advantage on the daily chart. That advantage is not by much, however, and the bulls will need to exhibit some fresh buying power soon in order to keep the bears at bay. The three-week old uptrend on the daily chart is still intact, albeit not by much. The bulls will need to produce a close above the $2,000 level soon to keep momentum going. Failure by the bulls to do so may lead to the bears taking over control of the market. The bears would look to produce a close first below the $1,950 level and then the $1,900 level. A close below the $1,900 level would be especially bearish, as it could likely force the bulls in the market to throw in the towel and give up. The market is now within striking distance of the $2,000 level, and a test of this key barrier may be seen in the days ahead.

Gold Weaker As Dollar Bounces Back

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The gold market is lower on Friday as a stronger dollar takes a toll. The solid rebound for the dollar this week is having a bearish effect on the metal, as slow, summertime trading also weighs. With no economic data set for release today, the market could simply drift the rest of the session as lower trading volumes do not help.

 

Despite today’s quiet market action, the gold bulls do have several issues behind them. The markets are still paying close attention to ongoing developments on the war in Ukraine. As U.S./Russian relations deteriorate further, concerns may increase about the possibility of an armed conflict involving the United States. The threat of an armed conflict is likely to keep gold interest elevated and may send buyers rushing into the market on any significant dips. The metal has held the $1,900 level thus far, and any tests of that area may be met with aggressive buying.

 

The war in Ukraine and the possibility of Russian conflict with the U.S. is not the only geopolitical issue to worry about right now. Talk has been escalating about the possibility of China invading Taiwan. A Chinese invasion of the island would almost certainly invite a U.S. response. If the U.S. and China were to square off, it would likely become World War III as U.S. allies and Chinese allies would also likely get involved. The balance of global power could even see a shift if such an event were to take place, and a U.S. loss in the fight could signal the end of an era for the nation.

 

An increasing number of nations are already moving away from the dollar. The currency is likely to lose its standing as the global reserve currency of choice in the years ahead. Once it does, the dollar could even become nearly worthless. As a massive supply of overseas dollars comes back stateside, the giant supply increase could erode the value sharply. Some nations have recently begun implementing a currency backed by gold. This trend could be set to continue in the years ahead, especially given the current state of sovereign debt.

 

For the time being, the gold bulls will attempt to keep the market as close to $2,000 as possible. The bulls currently have a slight advantage on the daily chart with an uptrend in place. The weak trend higher must see some follow-through in the weeks ahead, however, it will become vulnerable to a large sell-off. A challenge of and close above the $2,000 will need to take place to keep the bulls in business as summer begins to wind down next month. A failure by the bulls to overtake the $2,000 in the weeks ahead could set the stage for a bearish run lower and a possible test of $1,900.

 

 

Gold Slightly Higher In Boring Action

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The gold market is trading just above the unchanged mark in afternoon action Monday. Up by less than $1 per ounce, the yellow metal has been slightly higher and slightly lower on the day. Lazy summertime price action like this is typical this time of year, and several more weeks of this could be seen in the absence of any fresh bullish or bearish catalysts. This week will have numerous pieces of economic data for the markets to digest, and inflation data, in particular, could be market-moving for gold.

 

Likely the biggest potential data point of the week will be Wednesday’s release of the latest Consumer Price Index data for June. The report is expected to show a rise of 5.0% year-over-year compared to the prior reading of 5.3% in May. The report will be followed up by the most recent Producer Price Index data set for release the day after. Inflation has been the focal point of the financial media for some time now. A large increase in Wednesday’s CPI data has the potential to fuel significant selling across asset classes. A sharp decline, however, could have the opposite effect and could send buyers into the markets in a hurry. A large hit or miss could also affect the Fed and its decisions regarding policy this month when it meets.

 

An inflationary reading below 5% may be something that is celebrated, but it is still far exceeding the Fed’s desired target of a 2% annual rate. If the inflation data this week is at or near expectations, the Fed will almost certainly hold course. Although the central bank may refrain from hiking rates further, it is unlikely to begin lowering them at the same time. The Fed could, therefore, discuss at its next meeting its plans to hold rates steady for some time yet.

 

In addition to the Fed and its policy on interest rates, markets will also continue to pay close attention to the global geopolitical landscape. The war in Ukraine rages on, and worries are increasing that Russia could turn to nuclear weapons in the months ahead. The Russian invasion of Ukraine is not only a source of concern, but it is fueling other sources of worry as well. A Chinese invasion of Taiwan, for example, would almost certainly pull the United States into an armed conflict. The potential for World War III is certainly present, and global leadership will have to tread carefully to avoid it.

 

The many unknowns surrounding monetary policy and global conflicts are likely to keep demand for gold robust in the months ahead. As we get deeper into July, however, price action may become increasingly sideways with little to no sustained movement in either direction. In the meantime, the bears remain in control of the market which has been trending lower for several weeks now. The bulls need to produce a close above resistance at the $1,950 level to attract more interest and take advantage of the momentum.