Gold Higher As Fed Decision Looms

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The gold market finished the session higher on Monday by nearly $10 per ounce. The upside in the market was relatively quiet, however, and will likely remain that way until the Fed announces its decision on rates Wednesday afternoon. The central bank is widely expected to hold rates steady this week while maintaining its recent hawkish bias. A rate hike this week could send markets into a tizzy, while an overly dovish press conference could also do the same.

 

Markets will pay close attention to the Fed’s press conference following the announcement on rates. The central bank will, in all likeliness, maintain its hawkish stance on rates and could suggest more hikes will be seen in the months ahead. On the other hand, the Fed could also pivot and suggest a more dovish course of action ahead. Whatever the Fed does or does not do, markets may see some volatility post-announcement and gold could see some significant price appreciation if circumstances warrant.

 

Interest rates and the Fed are not the only major potential drivers of gold prices right now, either. There has been more and more talk of the dollar and its potential end looming. The dollar has already lost the majority of its value in recent decades. The currency was once viewed as the global reserve currency of choice. While it maintains that view today, its hold on the top position has become increasingly loose in recent years. Russia, China, and other nations have all taken steps to move away from the dollar for transacting crude oil and other commodities, and that trend is likely to continue.

 

A major breakdown of the dollar in the years ahead could see gold run into fresh all-time high territory and do so quickly. The gold bulls may simply be biding their time until the paper currency finally does collapse.

 

The gold bears have control of the market on the daily chart at this point. The four-month-old downtrend remains in place and the bulls have considerable work to do to neutralize it. The September highs around $1,980 are the first likely bullish target, followed by the $2,000 level. A solid close above $2,000 may signal to other bulls that the market is headed higher and could draw more buyers in. The bears, on the other hand, are targeting last Friday’s lows around $1,920 and then the $1,900 level. A breakdown below $1,900 would likely attract more short sellers into the market and could potentially fuel a move lower toward $1,800.

 

 

The bulls will likely need a fresh catalyst to stage a sustainable rally above the $2,000 area. This catalyst could take the shape of a dovish Fed or rate decreases, a major dollar collapse, or a recession. The market may remain range-bound until a new catalyst presents itself and may not do much of anything in the weeks and months ahead.

Gold Flat As Weekly Claims Decline

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The gold market is slightly higher in early action Thursday following the release of the latest weekly jobless claims data. Jobless claims did not rise as much as expected this week, with the final figure coming in at 216,000 claims. Consensus estimates were looking for a rise of 232,000 claims. The better-than-expected data may alleviate some fears of an economic slowdown as the jobs market has remained robust. The figures come on the heels of this week’s ISM Services Index and may act as a significant pushback to the narrative of a slowing U.S. economy.

 

The healthy labor market data could keep the Fed on its current hawkish trajectory. The Fed may see fit to keep interest rates at higher levels for longer. The central bank has already said that it would need to see increasing labor market slack before altering its policy stance. Weekly Jobless Claims did not show any such slack this week, and higher rates could be here for longer. The notion of rates remaining higher for longer could have a negative effect on the gold market. Any bearish effects may not be enough to force the market lower, however, but could keep it from rising substantially in the  months ahead.

 

The gold market may also be affected by ongoing geopolitical tensions. The war in Ukraine is ongoing, and worries over a Chinese invasion of Taiwan appear to be on the rise. A Chinese move into Taiwan could be market moving as it would almost certainly invite the United States to take action. The threat of a third global war is not only horrific at face value, but could also take shape as a nuclear conflict. The potential for a nuclear conflict may keep gold and perceived safe haven assets from declining in the months ahead, and any indications of war breaking out could lead to sharply higher demand and prices.

 

The yield curve could be signaling a black swan event taking place in 2024. Investors will watch the curve closely in the months ahead as it has been a very reliable indicator for decades. Any further inversion of the curve could signal trouble ahead, and that trouble may keep investors interested in gold. The yellow metal has lost some of its luster in recent weeks, but has yet to break below the key $1,900 level. A test of this level on the chart could trigger a buying spree, and the metal could stage a rapid and substantial rebound higher. On the other hand, a close below $1,900 could pave the way for more downside and an eventual test of $1,800.

 

The bears remain in control of the market on the daily chart. A lack of any further selling pressure could negate this advantage quickly, however, and could lead to a turnaround in prices. The $1,900 level is the next major downside target for the bears, and the market is within a day or two of this level. It could prove to be a major battleground and may lead to the market’s direction for the months ahead.