Gold Seeing Corrective Pullback Thursday

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The gold market is lower on Thursday as the market sees an expected pullback following recent strength. The yellow metal may be susceptible to more downside in the days ahead if the data stream is stronger than expected. That was already the case today when the latest ADP jobs data beat expectations handily. The ADP report showed a rise of 235,000 jobs for December while consensus estimates were looking for a rise of 153,000 jobs. The better-than-expected data could point to a stronger non-farm payroll report due for release on Friday, but the two reports have oftentimes shown very different results and so cannot be relied upon.

 

Friday’s jobs data may be the key data piece for the week. If the report is as expected, it may have little to no effect on markets. A large beat or a large miss, on the other hand, could potentially be market-moving. If the jobs report is weaker-than-expected, it could give the Fed more leeway on raising rates, possibly even leading to a pause by the central bank in its rate hiking campaign. A stronger-than-expected reading, however, could have the opposite effect and could give the Fed more reason to continue raising rates aggressively. Markets prefer lower interest rates compared to higher rates, and anything that may make it easier for the Fed to hold off or pause could be very welcomed by the markets. A weak jobs report could send gold to the next major resistance level at $1900 in short order. A strong report could also pave the way for gold to test the $1800 level on the downside.

 

The markets will be closely monitoring any new developments in the path of interest rates in the months ahead. After hiking rates by a smaller margin in December, markets now wonder if the Fed may resume its previous 75 point hikes or if it will take a slower approach and hike by 50 or even 25 points at a time. The central bank’s plans are currently unknown, but it won’t be long before the Fed provides some clues about its intentions.

 

In the meantime, the bulls and bears will continue to fight for control of the market on the daily chart. The bulls have a two-month old uptrend in place at this point and have enjoyed a recent upside breakout from the $1700 area. The bulls have, thus far, been able to hold the market above the key $1800 level in a sign of strength. As long as the market remains above this area, the bulls will have the edge and any dips may be aggressively bought. A breakdown below $1800, however, could give the bears some much-needed ful and could be the beginning stages of a move lower that could see $1700 challenged. A bearish breakdown below $1700 could get ugly, with little on the charts to get in the way of the market testing $1500 before finding willing buyers.

Risk Aversion Supporting Gold

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The gold market is higher again today and hit a new six-month high earlier in the session. The yellow metal is being bid up as risk aversion remains robust. Investors are concerned about a variety of issues, including the risk of recession this year and the prospect of even higher inflation. The war in Ukraine is not helping either and may continue to fuel rampant inflation that remains not far from multi-decade highs. Traders are awaiting the latest Fed meeting minutes set for release today which could provide further insight into what the Fed has planned for the year ahead.

 

In addition to the potentially slowing economies of key global leaders, the Chinese economy is also of special concern as Covid infections are again on the rise. The nation recently put an end to some of its closure policies, but those policies may have kept the infection from becoming even more widespread and problematic. As an increasing number of people get sick and are unable to work, the globe’s second-largest economy may again see a dramatic slowdown due to the virus. The timing could not be worse, either, as many powerful nations including the U.S. are already flirting with an economic recession. Worries over a recession may keep a bid going in the yellow metal and could keep any stock upside limited for the time being.

 

The jobs report due for release Friday could provide more clues about the Fed’s intentions. The report is expected to show a rise in jobs of 200,000, compared to the November rise of 263,000 jobs. If the report comes in as expected, it may not have much, if any, effect on markets. A large beat or a large miss, however, could send markets sharply higher or tumbling lower. The jobs data is one of the, if not the largest, economic reports of the month. Strength may allow the Fed to keep tightening as it has for months now, while weakness could give the Fed reason to consider a pause. The Fed has already suggested that rates may need to remain higher for longer, and anything that backs that notion up may give investors cause for concern.

 

The gold market is now above the $1850 level as of this post. The bulls have done a good job, thus far, of holding the market above the key $1800 level. The $1900 level is the next major target on the upside and that level could be challenged in the days ahead. The bears will look to produce a close below the $1800 level and then possibly challenge the breakout point at $1700. A breakdown below the $1700 level would be very bearish for gold at this point, and may find nothing to stop a decline in price until the $1500 level is reached.

 

Gold’s price direction in the year ahead may depend greatly on the Fed and its plans regarding monetary policy. Any clues concerning the Fed’s plans may be market-moving and could give the market reason to continue its current uptrend or to reverse course.

Gold Stronger On Chart Based Buying

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The gold market is kicking off the new year in the right way, with strong gains Tuesday that may attract more bullish follow through in the days ahead. Gold has already hit a six-month high today while silver has notched an eight-month high. What may make today’s rally in gold even more impressive is the fact that gold is sharply higher despite the dollar also being very strong today. Spot gold is higher by $18 per ounce as of this post and its run higher is likely already attracting more buyers into the market.

 

The Dollar Index is seeing a corrective bounce today after recent downside. The dollar is not far from its recent swing low, however, and could roll right back over and continue to form a trend lower. Of course, much of what the dollar does or does not do will depend on what the Fed does or does not do. Global central bank activity will remain a focal point for the markets in the year ahead, combined with inflation worries, the Russian/Ukrainian War and more. The Fed recently lifted rates by 50 rather than 75 basis points in December, and it could do the same at its next FOMC meeting. The Fed has already suggested that it will be slowing the pace of rate hikes, the question now is by how much. After suggesting that rates may need to remain higher for longer, many are questioning the Fed and its plans for the year ahead.

 

The Fed and other central banks will be keeping a close eye on some key factors to determine their policy paths going forward. At the top of the list are inflation data and the war in Ukraine. Recent U.S. inflation data has shown price pressures to be weakening a bit. Should that trend continue, the Fed may become increasingly comfortable allowing rates to sit at current levels without hiking them further. Markets and investors are looking forward to the day when the Fed signals a reversal on rates and announces it will begin cutting rates again. While that day may be a ways off yet, it will come at some point this year or next. Once it does, the gold market and stocks may both rally hard on the dovish Fed and gold could return quickly to previous all-time highs or beyond.

 

The war in Ukraine is another factor that central banks will monitor. The war has already helped fuel inflation and may continue to do so as long as it continues. Any signs that the war may be concluding would be welcomed by global markets and could also fuel a bullish surge in gold and other asset classes.

 

For the time being, the bulls will look to maintain trade above the $1800 level. The bears will look to take prices back below the $1800 level and possibly target the breakout point at $1700 if successful. The bulls will target resistance at the $1900 level on the upside, and have a two-month old uptrend at their backs to help.