Gold In Holding Pattern

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The gold market is modestly lower in late morning trade Thursday. Some downside is to be expected, however, following recent upside gains that have driven the market through key overhead resistance. The market is now within striking distance of the $1900 level, but may need to take a brief breather before it attempts to overtake this level on the upside. A move above $1900 on a closing basis could set the stage for a rapid move higher that could potentially see the bulls challenge previous all-time highs.

 

The gold market may also see several weeks of sideways action at this point. A period of market consolidation could be in store as investors await more clues from the Federal Reserve about its tapering plans and possibly even plans to raise interest rates. The Fed has maintained that it is in no hurry to raise interest rates and that rate hikes need not follow the conclusion of the QE tapering. Recent economic and inflation data could force the Fed’s hand, however, as inflation does not appear to be transitory in nature. Not wanting to send stock markets lower or to boat volatility, the Fed is likely to hold off on any rate increases for as long as it possibly can. The Fed waiting could put the central bank even further behind the inflation curve and could lead to even more significant price pressures in the months or years ahead.

 

Up in the air currently, the path of Fed action may be the primary driver of gold in the months ahead. Not only are Fed actions unknown at this point, but who will be leading the central bank is also not known. Potential Fed Chair candidate Lael Brainard, for example, is widely considered to be a major dove. Indications that he could be the next chief of the Fed could add some upside to gold. As the gold market awaits further Fed clues regarding policy and a better idea of who may lead the central bank, the market is likely to find itself in a holding pattern.

 

Gold bullion stands to gain handsomely on further increases in inflation. Those gains may be tempered significantly, however, by the rising likelihood of rate increases. Higher rates would increase the opportunity cost of holding gold and could make the path higher more challenging for the bulls.

 

The dollar could also have a significant impact on the gold market in the months ahead. After hitting a 16-month plateau last night, the greenback is backing off a bit today and may simply need to catch its breath. Any hikes in rates could also boost the dollar, also providing the gold bears with more ammunition to take prices lower or stall the rally out.

 

For the time being, the bulls are in firm control of the daily chart. Any significant dips are likely to be bought and bought aggressively. Recent upside has bought threw bulls some time. The market may now spend some time consolidating before attempting a fresh leg higher.

Bulls In Control

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The bulls have demonstrated their current control over the yellow metal, purchasing Tuesday’s dip to send prices sharply higher in early action Wednesday. Inflation fears remain the central theme for the bulls. Now that the market has cleared resistance in the mid 1830s, it could potentially be off to the races in the sessions ahead. In fact, the bulls could target previous all-time highs in the weeks ahead. An upside breakout into fresh all-time highs could see the metal run sharply and significantly higher in a short period of time.

 

Stock markets have remained strong in recent weeks. Upbeat corporate earnings data combined with holiday shopping has stock investors in a good mood. Whether that positivity can be retained into the new year remains a key question, however, as numerous potential hurdles may present themselves. For now, inflation remains the key economic topic that may dictate market direction for the months ahead. Despite previous reassurances from the Fed that inflation appeared to be transitory in nature, rising price pressures do not seem temporary at this point and could continue to put a stranglehold on the economy and consumer for an extended period of time.

 

The U.S. could, in fact, be entering a prolonged era of stagflation in which prices rise while economic output decays. Although it remains to be seen if this will prove to be the case, the notion may keep investors on their toes for the next several months and could keep interest in hard assets like gold elevated. If the nation does in fact enter stagflation, gold could see a sharp and dramatic rise into new all-time highs. The yellow metal could see such a rise whether the U.S. sees stagflation or not, and any form of rising price pressures is likely to keep the bulls motivated.

 

Regardless of what the Fed may think, the current state of supply is in dire straits. Massive shipping bottlenecks

will take several months to resolve, at a minimum. As long as these bottlenecks persist, higher prices are not only possible but increasingly likely. The Federal Reserve does have the power to squelch inflation and slow things down, the question though is will it. The Fed already seems to be far behind the inflation curve, and the longer the central bank stands by watching, the worse the problem may get. Having backed itself into a corner, the Fed now finds itself not wanting to upset stock markets by adjusting monetary policy. The central bank appears to be quite willing to allow inflation to spiral out of control as it maintains its current state of ultra-low interest rates and accommodating policy.

 

This course of action by the Fed may prove to be its folly. It will encourage investors to go to gold, however, as the threat of even higher prices increases. The effects of Fed policy may take years to unwind, if they can even be unwound at this point. This along with other bullish factors could keep gold moving higher for years to come and may keep any dips in the value of gold attractive to patient buyers.

Gold Powers To 2-Month High

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Now that the Fed has again spoken and laid out its plans for tapering of monthly security purchases, there is little left for investors to be uncertain of. Despite the Fed’s plans to begin cutting its monthly QE, the gold market is seeing solid buying interest that may in fact take it above key resistance, potentially sending it off to the races.

 

The bulls appear to have refocused their attention. The threat of tighter monetary policy is now riding a distant second behind the threat of sustained and problematic inflation. Although the bulls acknowledge the potential problems that inflation may impose, there seems to be very little risk aversion in the marketplace right now. Late Friday, the U.S. House of Representatives passed a slimmed down version of a spending plan. U.S. stock indexes hit record highs the same day and are thus far extending that rally into today’s session.

 

Key outside markets do not appear to be much of a factor today. The benchmark 10-year Treasury yield has declined in recent days, now fetching some 1.481%. The dollar, which hit its highest level for the year last week, is seeing some downside today while the price of crude oil is pushing higher today at over $82 per barrel. Economic data for today is light and may also not be much of an influence on the markets today.

 

The threat of a further rise in prices is not the only bullish factor for gold right now. The bulls can also buy based on dollar weakness, massive sovereign debt levels, a potential stock market reversal and other issues. Inflation may just be the next major bullish catalyst to fuel the rally if it is not transitory in nature as the Fed has called it. Even if it does prove to be temporary, inflation may still cause a significant rally in gold that could take prices well into fresh all-time high territory.

 

The gold bulls are in control on the daily chart and are finally attempting to extend the recent rally beyond resistance. The next key target for the bulls lies around $1836. An upside breach above this level on a closing basis could signal further upside and strong momentum for the rally. A failure at this level, on the other hand, could be indicative of a false rally and could give the bears new power to take prices lower again. Now that the market is well within striking distance of key resistance, the next several sessions could prove to be very key for gold’s near-term outlook. Not only could fresh buying enter the market, but a massive short squeeze could also take place and fuel a sharp and rapid rally in the yellow metal that could take it beyond resistance. If the bulls fail, however, it could set the market  back for weeks or even months. The yellow metal has shown it is quite comfortable trading within a range and it could easily return to that range upon an upside failure.

Modest Moves

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The gold market is moving modestly higher in mid-morning trade Monday as the new trading week gets going. Spot prices are up almost $7 per ounce putting the yellow metal at $1790 and change. Despite some recent upside, the gold market has lacked any sustainable follow through on rallies or breakdowns in recent months. This has many investors likely asking themselves what it may take for the metals to actually break out and sustain a move either up or down.

 

The answer to that question may lie in the Fed and what the central bank does or does not do in the months ahead. The primary worry for metals investors has thus far been one related to whether the Fed will be forced to act quickly and aggressively to reign in overheating inflation. The possibility of the Fed doing so, while technically possible, seems extremely unlikely. The Fed is very tentative, and with mounting political pressure to focus on the employment side of its mandate, it could continue to maintain a very easy money stance for several more months or longer whether it pulls back on QE or not.

 

If rising inflation is not the determining factor for the Fed, what else may fuel gold to surpass previous all-time highs and to make a sustained run higher that may attract more investment? The answer to that question may lie in gold’s value. Compared to stocks, real estate and other risk assets, gold has not had the run up that they have and thus may be considered to be undervalued at current levels. Of course, investors would have the voice of putting capital to work in stocks, for example, but why would they choose asset classes that some already feel are extremely overvalued and unlikely to provide much of a return in the years ahead?

 

The day of reckoning for investors will arrive and it will come in the coming months. When that day arrives, they will likely feel far more comfortable about the Fed and its inability to aggressively tighten monetary policy. If GDP data were to also trend slightly lower during that time, what reason would the central bank have to tighten aggressively anyway? Likely none-and that could fuel gold to all-time highs or far beyond in the months and years ahead.

 

As the market has maintained its recent trading range, the bulls still have control of the market on the daily chart. The bulls’ control is tedious, however, and fresh strength will need to be shown soon in order to keep the bears at bay. The mid 1830s remains the next key target for the bulls to take out on a closing basis, while the bears will look to make price decline below support at $1750. The longer prices hang around this general congestion zone, the more likely the bears will catch a break and the market may reverse course. Weak economic data and/ or a weaker dollar may be what the market is looking for in order to breakout and rally higher.

Rising Yields and a Stronger Dollar

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The gold market is slightly higher in mid-morning trade Monday after moving lower earlier in the session. Spot prices are up some $1.40 per ounce as the market appears to be awaiting further inputs. Rising bond yields and a stronger dollar may be the story today.

 

The benchmark 10-eay treasury yield currently sits around 1.61%. Yields have been trending higher recently, however, and could potentially point to trouble ahead. Higher bond yields could be indicative of rising inflation and may even lead to a prolonged period of stagflation in which inflation climbs while economic growth slows. Today is the Columbus Day Holiday in the U.S. United States banks and treasury markets are closed today and these closures could make for some quieter trading today. With a very light data docket for today, investors may choose to largely sit on the sidelines and markets could end up drifting for much of the session.

 

The gold market seemingly wants to remain in its current comfort zone. The bulls have had little to sow on the upside while the bears have also been unable to fuel a significant downside breakdown. Which side will eventually succeed remains the topic of debate. Despite rising bond yields, the threat of Fed tapering and other bearish issues, the gold market still has numerous reasons to rise, and rise substantially. Dollar weakness, the inability of the Fed to exit its unorthodox policies, higher inflation and more are all good reasons to buy and hold physical coin and bullion.

 

For the patient, long-term investor, any further weakness for gold should make for an excellent buying opportunity. A breakdown below the $1670 level would likely fuel a stampede of buyers entering the market and the market could see a significant and rapid reversal back to the upside. Likewise, the market may see an increase in buying activity on any exhibitions of strength. If the gold bulls are able to take out the mid-1830s on a closing basis, for example, the market is likely to benefit from short-term traders and momentum players getting long. Current price levels do not, however, warrant much excitement and the market is really in no man’s land right now.

 

While markets do spend a lot or even the majority of their time in a trading range or moving sideways, such periods of consolidation do not last forever. At some point, the laws of supply and demand will dictate a significant move higher or lower. We still believe that gold will hit $3000 or $5000 per ounce in the months or years ahead. The question in our view is not if but when. This outlook makes now a great time to buy physical gold. Any dips in price from recent levels should not be viewed with a sourness but should be welcomed with open arms as an opportunity to acquire even more gold while it is on sale.

Gold Higher As Jobs Growth Sinks

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The gold market is moving higher in early action Friday as markets digest the latest jobs data. The September non-farm payrolls report released earlier today showed weak job growth. The country added just 194,000 jobs for the month while consensus estimates were calling for an additional 500,000 jobs raised. The September figure was even lower than the August figure which saw 235,000 jobs added. The consecutive misses in jobs growth points to a disturbing trend and could keep the Federal Reserve on hold longer than it wants to be.

 

Whether the Fed actually does begin to taper its monthly security purchases in the months ahead remains a topic of debate. Some data points have pointed to economic strength and recovery while others, such as the jobs data, have pointed the opposite way. Today’s non-farm payrolls data may provide more questions than answers and could set markets up for a period of heightened volatility as the next Fed meeting approaches.

 

Although today’s non-farm payrolls topline didn’t do markets any favors, the report did also contain some positives. The unemployment rate, for example, declined to 4.8%, falling below estimates for a reading of 5.1%. The disappointing numbers for August were also revised higher by 131,000 jobs. Even July was also bumped up, reaching nearly 1.1 million jobs.

 

Wage inflation showed further signs of picking up which may be bullish for gold. September wages, according to the report, ticked higher by .6% or $.19. Rising demand for labor coinciding with the recovery from the pandemic have put upwards pressure on wages. The biggest question facing markets now is whether the Fed will follow through on its plans to begin tapering before the end of the year.

 

Numerous analysts interviewed in the aftermath of the report seem to feel that it was decent enough and that the Fed will announce tapering at its November meeting. Of course, things could change in the meantime and a bad November obs report could also sway Fed votes in the opposite direction.

 

Fow now, the bears are still in control of the daily chart. That control is now by a thread, however, as a month old downtrend has now been negated. The bulls will need to exhibit some strength and exhibit it soon, however, as a lack of upside may encourage the sellers to keep playing the short side of

the market. The $1800 level remains the next near-term target for the bulls. The bears will look to take prices down to the $1700 area before getting excited. With the market now above the $1750 level, the bulls may attempt to rally prices further. Dollar weakness, stronger crude oil and uncertainty over the Fed’s tapering plans may keep the bulls coming back for more. The upside will not really open up unless the bulls are able to take out resistance in the mid 1830s on a closing basis, however. Until then, the market may simply remain sideways awaiting further inputs.

Kicking The Can Down The Road (As Usual)

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Congress has reportedly reached a deal to avoid a debt crisis as the U.S. approaches the point it runs out of cash. Democrat Chuck Schumer announced today that Democrats and Republicans had reached an agreement on raising the debt ceiling by $480 billion. The agreement hikes the government’s borrowing authority until early December at which time a long-term deal must be reached or a stop-gap measure put into place.

 

The removal of the immediate threat to the U.S. fiscal situation is driving a rally in equities today, with the benchmark Dow Jones Industrial Average up by 500 points in mid-morning trade. The gold market is slightly lower today as the threat removal may deter some from buying gold and may fuel desire for higher risk assets such as stocks.

 

The question, however, is whether Congressional leaders will be able to reach a long-term agreement that works before the December deadline. With the debt ceiling already approaching the $30 trillion level, one has to wonder if the government even cares about it at this point. $30 trillion is, after all, a lot of money. Some might even say that the deficit is insurmountable and can only possibly be repaid through currency devaluations or other major methods of action. Whatever the case may be, the U.S. Government certainly has an issue on its hands and that issue will need to be dealt with at some point-the sooner the better.

 

Deficits have become a way of life for the U.S. and many other governments across the globe. These deficits have been a major component of much of the wild market speculation seen in recent years, even decades. Once the bill becomes due things are likely to take a major turn, however, and that turn could rock global financial markets to an extent that has not been seen before.

 

The debt crisis is exactly that: a crisis. When the crisis comes to pass, it is going to hurt. That makes now the ideal time to acquire and build a portfolio of assets that may outperform during such a period. Assets that can not only hold their value but may increase in value are ideal. Assets that can be held in your hand and cannot be manipulated

by the government. Hard assets such as physical gold, silver and other metals may provide relief from the debt crisis once it hits. These assets cannot default, declare bankruptcy or otherwise disappoint their holders. Their value is determined by the laws of supply and demand and cannot be manipulated through central bank magic.

 

The price of gold has been and may continue to be sideways for some time. Current prices may not be seen again, ever, however. Once the market takes off, it could make fresh all-time highs that far exceed current highs. With no upside chart pressure on the metal, it could easily run higher to $3000, $5,000 or even $10,000 per ounce or more in a matter of weeks.

 

Let the government kick the can down the road, but keep the long-term consequences in mind and invest accordingly.

Are Stocks Headed Lower?

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The stock market saw some significant declines on Monday as the new trading week got underway. The question many investors may now be asking is whether October will hold more declines in store or even if a major market crash is imminent. The direction of equities is important for gold, as lower stocks may drive buying in gold and stronger stocks may subtract buyers from the market.

 

Equity markets are, thus far, seeing a very strong rebound on Tuesday. This rally today is to be expected, however, and does not necessarily mean that equity market risks have abated. The Fed’s tapering plans, inflation, Evergrande and more may all keep volatility on the rise this month and the selling pressure on. Some have even suggested that October will see a major market crash-one in which every asset class will decline sharply including Bitcoin and gold. Whatever the case may prove to be, the markets appear headed for some changes that could shake things up substantially. Such a shakeup could make now and the months ahead the ideal time to be watching and buying physical gold.

 

In addition to the market threats mentioned above, investors will also need to pay attention to the debt ceiling. The U.S. is set to run out of cash on October 18th. Without a deal in place beforehand to raise the debt ceiling, the country risks a default. A U.S. default would be its first in history and would have a significant impact on global financial markets. Rising borrowing costs and the threat of recession are two of the possible results from a default, and the effects of these could be long-lasting and severe. With so many other major issues on the table right now, it is difficult to imagine a more challenging time for a debt showdown than now. Hopefully, the U.S. Congress will pass legislation pertaining to the debt ceiling sooner rather than later and avoid a major shakedown of consumer and investor confidence that could arise from waiting until the very last minute.

 

For now, the gold market appears to be comfortably range bound and could stay that way for a significant period of time. As of today, the market is holding support in the $1750 area. The bulls have, however, shown little to no buying interest in recent sessions. With the daily chart now tilted in the bears’ favor, any rallies may be due to short covering rather than fresh buying. This could, in turn, keep any upside price pressure limited.

 

As the bears look to take out support at $1750, their next downside target likely stands around the $1700 level and then $1670. The bulls, on the other hand, need to target previous resistance at $1800. A close above $1800 may restore some of the bulls’ confidence, however, resistance in the mid-1830s remains allusive. Only a breach of the mid-1830s, on a closing basis, may ignite a fresh round of buying that could sustain a move higher.

Some Degree of Volatility

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The gold market is seeing some degree of volatility as the new trading week gets underway. The yellow metal has seen a rapid reversal in mid-morning trade today. After being down several dollars per ounce, the market has now sprung higher with spot prices rising by some $7 per ounce.

 

The earlier downside in the market is likely due to a deteriorating chart situation. The short-term technical posture of the market has encouraged short-term futures traders to play the short side. As long as this remains the case, the market will remain vulnerable to selling fits that could drag prices down towards the $1700 level or lower. The bulls, on the other hand, will attempt to take the market firmly back above prior resistance at the $1800 level.

 

The yellow metal is quite likely in a holding pattern of sorts, however, until the latest non-farm payrolls data is released. Set for release on Friday, the jobs report could set the stage for an increasingly aggressive Federal Reserve to begin tapering its monthly asset purchases. If the Fed does begin to cut its monthly security purchases, it could have a bearish effect on the gold market. A rising dollar and higher bond yields could make life very difficult for the gold bulls if the period of easy money comes to an end. Although the central bank has suggested that it would taper until all of its purchases are over before touching interest rates, it has become increasingly likely in recent weeks that the Fed could look to hike rates as soon as next year.

 

Despite the threat of ongoing inflation, an increasingly hawkish Fed and other bearish factors, the gold market still has reason to shine. Fears over Chinese company Evergrande and its effect on the global economy may keep a safe haven bid in the marketplace. Higher energy prices could also weigh on the global economy and may also keep buyers alive and well in the gold market. The debt ceiling issue is another major potential roadblock for markets. If the ceiling is not raised, in time, the U.S. could default for the first time in history. A default by the country could send borrowing costs sharply higher and could even out the nation back into recession.

 

The bears are in control on the daily chart and will try to maintain that control for more than a few days. The market is in the midst of a downturn that began about a month ago. The bears have little to show for their efforts thus far, however, and could become increasingly frustrated if prices do not decline further in the days ahead. This could make the market also vulnerable to a short covering rally. Such a rally could be powerful in nature and could take prices rapidly higher, attracting fresh longs along the way.

At the end of the day, gold investors and traders may need to show patience as the market works out where it belongs. The Fed may not be trusted by the public at this point either, and it may take actual action from the central bank to have a significant and lasting impact on the gold market.

A Slow Start

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The gold market is off to a slow start as the new trading week gets underway. Spot prices are little moved from unchanged, trading up some thirty cents per ounce. The market is focused on government spending today as two key issues come up for a vote later in the week.

 

President Biden’s infrastructure plan is due to be voted on by the House of Representatives on Thursday. That is the same day in which government funding could dry up, leaving the government partially shutdown starting Friday if no additional funding deal is reached. The potential for the government to run out of funding Thursday evening is likely to become an increasing point of anxiety in the days ahead if a deal is not reached beforehand. The threat of a partial shutdown starting this week could fuel market volatility and selling and may give perceived safe haven assets such as gold a major boost.

 

The Biden Administration’s infrastructure plan could also send waves through financial markets. These waves would come at a time when worries over the debt ceiling are already mounting and concerns over U.S. fiscal health are on the rise. A lack of plan passage could send the dollar lower while also igniting bearish forces within stocks and risk assets.

 

Treasury yields have also again taken center stage as yields are on the rise again. The benchmark 10-year Treasury yield is fetching some 1.446% today and could see a further rise if worries over national spending and debt increase. Higher yields could cause some ripples for gold as it makes the opportunity cost of holding the metal more expensive. A significant rise in yields may not be seen, however, until the Fed actually begins hiking interest rates. Such a move could still be quite a ways off and the central bank is far more likely to taper its monthly security purchases first.

 

The gold bears may now hold a slight overall advantage on the daily chart. That advantage could change quickly, however, to the bulls if they are able to mount a rally back towards the $1800 area. The market appears to be in technical no man’s land for the time being and could spend a lot more time there. The bulls must still target and take out the $1800 level on a closing basis. The bears, on the other hand, want to take prices down below $1677 per ounce. The upside breakout or downside breakdown could be indicative of gold’s fortunes for the foreseeable future. Although this move may take time to develop, it could prove to be very powerful and long lasting once it does.

 

The gold market still has numerous reasons to buy it and hold physical gold for the long-term. Dollar weakness, runaway government spending, geopolitical risks and more are just a few of the reasons to consider an allocation in gold. The current period of consolidation could also prove to be the ideal time to acquire the metal as current price levels may not be seen again once the metal stages an upside breakout.