Gold Markets Continue to Rally

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A weaker US Dollar Index as well as a bullish chart posture are propelling the gold market higher on Monday as traders return from the Thanksgiving day holiday. Spot gold prices are firmly above the $2,000 level in mid-morning action and the cloud stay above this key level throughout the session. If the bulls can maintain early day strength until the close today, the market could see a fresh flurry of buying in the days ahead. If the bulls fail to hold recent gains, however, the bears could see it as a chance to pounce and could take the market lower in the near term.

 

The gold market is seeing benefit today not only from a weaker dollar but also from the notion that the Fed may be done raising interest rates. Some recent data has shown tamer inflation figures, and these weaker price pressures may allow the Fed to remain on hold for some time or even to start easing rates again if the economy runs into some serious bumps. As far as the gold market goes, the bulls do not necessarily need lower interest rates to push the market higher. Any further indications that the Fed’s tightening cycle may be over would be sufficient enough to push prices higher. If the yellow metal has been able to crack the $2,000 level with rates at their highest level in over two decades, imagine how high they could potentially go if the Fed did start to cut rates once again.

 

Inflation and interest rates remain key area of focus for the gold market, but they are not the only areas of focus. The war in Israel has been widely discussed over the weekend as a prisoner swap got underway in the middle of a four-day ceasefire. That ceasefire was extended today by another two days which may allow for the peaceful transfer of more innocent prisoners today and Tuesday. Israel has made it clear, however, that it intends to resume fighting once the agreement is over. The violence could even see an uptick as Israeli forces get deeper into Gaza, while non-combatants continue to pay a price for being stuck in the region. Some aid has been able to get into Gaza in recent days, however, the amount of aid that has reached the region is not nearly enough. Whether Israel allows more aid into Gaza is unclear, and if it does not, more civilians may perish.

 

The gold bulls are now in charge on the daily chart. The bull’s next upside target is likely the October highs reached just under $2,040. Beyond this area, the $2,050 level would be next. The bears, on the other hand, will target an initial close below the $2,000 level. A close below this key area may entice more bears to jump into the market and a solid swing lower could be seen, taking the market to $1,950 or even lower.

Fed In No Hurry To Lower Rates

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The gold market is off of its highs of the session in mid-afternoon action Tuesday but is still above the key $2,000 per ounce level. The metal is now struggling to hold above this key level, however and could even finish below it at the end of the day. A failure by the bulls to maintain the rally above this area could result in a downdraft for the market as the bears could become increasingly encouraged. If the bulls can hang on, it could spell more upside for the yellow metal as momentum players and others see it as a sign of strength and look to get involved.

 

The Federal Reserve minutes from the most recent November meeting showed the Fed is in no hurry to begin easing interest rates. The Fed does not seem to be in a hurry to raise rates either, however, and suggested that rates are likely to stay at current levels for longer to battle inflation. The Fed has brought inflation down in recent months through its actions, but inflation is still well beyond the central bank’s desired target of 2% annualized. Keeping rates around current levels may eventually bring price pressures down to normal levels, but it is unclear exactly how long that could take. Given how inflation has remained robust despite an aggressive Fed over the last year or two, it could be some time before price pressures approach the desired target level.

 

The rating committee did acknowledge what it sees as growing risks to the economy. A high degree of uncertainty surrounding the economic outlook was noted, and that uncertainty may keep the Fed from hiking rates even further in the months ahead regardless of how inflation behaves. The economy could potentially enter recession territory if things do not change in the months ahead, and it is unknown how the Fed might react should the economy take a drastic downturn. This may lead some investors to think that lower rates could be seen, but the Fed could also elect to hold strong and maintain its tighter bias towards rates.

 

The gold market may also be affected by the two wars currently underway. The Israeli/Hamas war and the Russian/Ukrainian wars are both raging, with little fresh news to report on. Both conflicts could potentially lead to much larger conflicts, however, for different reasons. The Israeli/Hamas war could drag other players into it, such as Iran. Iranian involvement would almost certainly invite the U.S. to get involved as well. This could lead to a third world war. Discussion of nuclear weapons usage has been on the rise by Russia and others. If Russia were to use a nuclear weapon against Ukraine, it could open up a whole new level of violence and anxiety surrounding the war. The use of such weapons could also invite other nations to use these weapons of mass destruction and a nuclear war could break out, destroying much life and land in the process.

The Calm Before The Storm?

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The gold market is having a quiet day on Wednesday as spot prices are lower by a dollar and change per ounce. The metal took a dip from levels seen earlier in the session after retail sales data came in better than expected. Not only did retail sales data for October beat expectations but the September print was also revised higher. The stronger data may lead more investors to assume that the Fed will not be lowering interest rates any time soon. The higher-for-longer mentality appears to be here to stay, although the Fed could still hike rates even higher if inflation rises or if the data becomes too hot.

 

Interest rates and inflation remain a focal point for the gold market, but they are not the only focal point. The two wars currently happening, between Israel/Hamas and Russia/Ukraine, are also the subjects of attention. The Russian/Ukrainian war has been raging on for some time now, and no end to the conflict appears in sight as of yet. Although there have not been any new, major headlines in this war for some time now, the talk of nuclear weapons being used has been on the rise in recent months. Although the use of nuclear weapons may remain very unlikely, the potential threat of even discussion of them may keep gold and other flight-to-safety instruments well-bid in the months ahead.

 

The war in Israel has already entered what could be its most deadly phase as Israel marches into Gaza. This region is filled with non-combatant civilians and many of them have already been killed in the violence. The lack of power, internet, and even water may only make the situation worse in the region. This conflict has thus far remained between Israel and Hamas. Should others, such as Iran, decide to become involved, it would likely force U.S. involvement as well and the conflict could blow up quickly into a global affair. Fortunately, that has not happened as of yet. The possibility of it could also lend gold a boost, however, and may keep the yellow metal from falling too far if it does decline rather than rise.

 

The gold bulls continue to take a breather following the recent upside for the metal. The metal remains well within striking distance of the next key technical level at $2,000 per ounce. The bulls will likely challenge this area again in the coming days or weeks. A successful upside penetration on a closing basis could set the stage for a much larger rally that could challenge previous all-time highs in a short period. A failure to take this level out, on the other hand, could pave the way for the bears to take control of the market and drive prices sharply lower. Given high levels of inflation and the risks of a Third World War, the bulls may have the advantage.

Gold Rebounds As USDX Dips

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The gold market is seeing a nice rebound on Thursday after some recent selling pressure. Spot gold prices are higher by $14.50 per ounce just after the close of the pit session. Bulls stepped in to buy the recent dip following some technical selling pressure, and friendly outside market postures in both the dollar and crude oil also gave the yellow metal a boost. The day’s gains may have been limited by higher treasury yields, however, as they did tick higher throughout the session. The metal remains a ways away from the next key technical area at $2,000 per ounce. The bulls are still showing signs of life, however, and this area may yet be tested once again.

 

The gold market has been mostly sideways for several weeks now. The war in Ukraine continues to rage on, but without any new, significant news coming out of the region, the gold bulls may be forced to look elsewhere for a bullish catalyst. The potential threat of a nuclear confrontation, however, may keep gold from falling too far if it does decline. The war between Israel and Hamas has taken center stage in the financial media in recent weeks. This conflict has entered what could be a very bloody stage, as Israeli defense forces have marched into Gaza. This region is full of non-combatants and innocent civilians, who have now been without power and internet for some time. Water and food shortages are also a problem in the area, and without some type of aid being able to get into the region, more innocent civilians could perish as a result.

 

In addition to the ongoing global military conflicts, the gold market is also paying close attention to inflation and interest rates. Inflation is down from where it was several months ago, but it remains well above the fed’s desired target of 2% annualized. The stubborn inflation may force the Fed to continue hiking interest rates even further, or it could give the Fed reason to hold rates steady at current levels for longer than expected. Either way, the gold bulls may not come out en masse until the Fed signals that it is done raising rates or that rates may begin to be eased again.

 

The gold bulls remain in control of the market, but not by much at this point. If the bulls are unable to exhibit more power and do it soon, the bears may see an opportunity to pounce and retake control on the daily chart. The two same areas, $2,000 for the bulls and $1,900 for the bears, remain key technical levels that could dictate market direction for the months ahead. A close above or below these levels may signal to market participants that it is OK to enter the long or short side of the market. These momentum players could then drive the market in that direction for an ongoing move that could last several months or more.