The markets are off to a rough start in early action Monday as stocks sink. Investors are becoming increasingly concerned about a Chinese property developer and its financial condition. The company, Evergrande, is in substantial trouble and markets are worried about the risk of contagion. China may now be facing its own form of a Lehman Brothers moment, and how it handles the situation could determine how financial markets react for months ahead.

 

Stocks are at four week lows in early trading, with the Dow Jones Industrial Average down about 500 points. Fear is hitting stocks and risk assets like a tidal wave today, and market volatility could potentially see a rise that could last not only for days but for weeks or months.

 

Much of the capital outflows from equities today are finding their way into the gold market. Gold is up over $11 per ounce in early action and could see further gains ahead if the stock sell-off does not ease. Investors may also be content with going to cash or even Bitcoin and cryptos if the selling doesn’t ease up. Whatever the case may prove to be, there may be a significant amount of capital looking for a new home by the end of the day and that may be bullish for gold.

 

The Evergrande crisis comes at a time when the Federal Reserve is set to meet Tuesday and Wednesday of this week. The Fed will then announce its decision on policy and provide a press conference for Chairman Jerome Powell. The question investors may now be asking, however, is whether a major sell-off early this week could dictate the Fed’s discussion on its tapering plans. The central bank’s tapering plans have been the subject of ongoing debate and anything that could keep the Fed’s foot on the gas pedal longer may be viewed as being bullish for gold.

 

The Dollar Index is higher today, hitting a four-week high in early action. Gold is climbing despite the stronger dollar, however, and any strength in the currency may simply be a function of risk aversion. Ongoing dollar weakness, however, could pave the way for higher gold prices as they often exhibit a negative correlation.

 

Despite today’s strength and price rise, the gold bulls still have their work cut out for them. The market remains firmly below previous resistance at the $1800 level and will likely not get people too excited without a breakout above this area on a closing basis. The bulls must then target resistance in the mid $1830s and take it out to attract further buying interest. If that proves to be the case, the bulls could then potentially ride a quick wave higher as gold prices could sail all the way towards the $1900 level. The bears, on the other hand, will look to take advantage of recent momentum and to drive prices further below previous support in the $1775 region. If gold declines further, the bears could pave the way for a rapid leg lower that could see prices move towards the $1650 region in short order.

The gold market is off to a stronger start in mid-am trade Monday. After being down earlier in the session, the bulls have circled up and driven prices higher by nearly $8 per ounce. The gains are coming ahead of tomorrow’s CPI report which could show inflation continuing to rear its ugly head.

 

A rebound in the U.S. Dollar Index  may weigh on gold today as the currency looks to bounce back from a recent test of swing lows in the 92 area. How much potential upside the currency has is another question and it could soon run out of gas leaving it vulnerable to bearish pressure that could send it right back down to 92 or lower.

 

Despite the key issues that may be viewed as bullish for gold, the market continues to struggle with apathy. Recently, the CFTC reported that hedge funds and large market participants lowered their bullish positions in the metal last week. The participants actually reduced longs so that the market’s net length is now 17% less than the previous week.

 

The reduction in net long positions could be indicative of speculators holding the view that the Fed is likely to begin tapering its asset purchases sooner than expected. A reduction in QE by the Fed does have the ability to negatively influence gold and could set the stage for a decline in inflows for the metal that could see it drop in price accordingly. The specs may also see a rise in real rates on the horizon and may be reluctant to get long gold in such an environment.

 

As markets ready for tomorrow’s inflation data, they also continue to monitor the geopolitical scene for any inputs. Overnight, North Korea fired a gtest missile that reportedly traveled nearly 1000 miles. Although the missile firing is not causing market volatility or selling today, it does act as a stark reminder that North Korea is still in search of viable weapons. The rogue nation may yet need to be dealt with in one way or another and could pose a serious threat to global democracy and prosperity.

 

The major spending plan by the Biden administration is seeing some obstacles as the President attempts to get it passed by Congress. Although it is not causing any major upset today, a lack of passage for the bill could send stocks and risk assets lower while also potentially giving the dollar a boost. Such a scenario may be viewed as being bearish for gold and the next few weeks will provide further developments on the story.

The highly anticipated speech by Fed Chairman Jerome Powell hit the wires earlier Friday. Powell seemingly suggested that the central bank is strongly considering tapering its monthly security purchases, or QE, before the end of the year.

 

The Fed Chairman did, however, take a more cautious tone about tapering, which could mean that he is looking to leave all options on the table. Powell noted that the economy has continued to make progress towards the Fed’s goals. Powell stated that he believes that policies are currently “well-positioned.” He also suggested that significant progress has been made towards inflation and maximum employment.

 

When pressed on the subject of when the Fed could look to remove stimulus, Powell said that such a move is likely to happen this year. He referred to the Fed’s July meeting at which the central bankers discussed the evolution of the economy making it an appropriate time to begin the tapering process. Not all was glee and roses, however, as the Fed Chairman also referred to the ongoing Delta variant viral spread as a major obstacle. While economic progress has been made, the central bank vowed to continue to monitor incoming data for any significant changes and could take action or not take action based on any changes.

 

Even if the Fed does begin tapering this year, the long-term securities held by the central bank may continue to be supportive of the economy and financial markets. U.S. macro data will be the key going forward and will determine if or when the Fed does begin pulling back.

 

What might this mean for gold?

 

Gold is sharply higher on the session and appears to be excited about more clues from the Fed. It has been suggested by many analysts that Fed tapering may be bearish for the yellow metal, but the exact opposite may prove to be true. The potential for the timing of Fed tapering has been a major obstacle to higher gold prices for some time now. Once that hurdle is removed, however, the market may see a green light to move higher regardless of what the Fed does or does not do.

 

With some of the uncertainty removed from the marketplace, the gold bulls may now be able to take charge and drive prices above the $1800 resistance level.

 

Powell further discussed the Fed’s potential plans and suggested that even if the central bank does scale back its monthly QE operations, that does not mean it will begin hiking interest rates. Powell said the Fed has a stringent test for any rate hikes and that the central bank will have to see if its desired 2% inflation target and maximum employment goals hold true.

 

It seems as if time will tell, and that the amount of time necessary may be substantial. So, the message from today’s Fed commentary seems to be clear: Expect tapering to begin in the months ahead, but do not expect interest rates to go anywhere anytime soon.

The gold market is up strongly in early action Monday as the metal looks to retake the key $1800 level. The upside in gold being seen in early trade today may be due to several factors. Bullish outside markets, including a weaker dollar and higher crude oil, may be playing a part. The Fed symposium taking place this week may also be playing a role, as some are now feeling the central bank will not be able to begin tightening its monetary policy as soon as some had expected in recent weeks.

 

The ongoing Delta variant is having a major impact on the global economy, with some areas such as China and other parts of Asia being hit especially hard. The variant is also having an effect on the U.S., however, and could force the country back into mask mandates and other measures designed to stop the viral spread.

 

The Delta variant is also likely a major influence for the Federal Reserve. Its spread could keep the Fed on hold for longer than anticipated. The Fed could signal, even this week, that it sees the virus as a significant economic threat that could make it decide to keep its foot on the gas pedal. Whatever the case may be, it appears that market participants may now be betting on the Fec staying the course longer than previously thought.

 

The bulls will now look for the market to close above the $1800 on a convincing basis. If the market is able to do so, it could attract further buying interest that could send the market up towards resistance in the $1840-$1850 region. A failure at the $1800 level could, however, bring the bears out in force, possibly sending the metal on a drastic move lower that could see it even take out the recent lows below the $1700 level.

 

The gold price has held its gains following the release of the latest U.S. PMI data. The weaker than expected figures show a slowdown in the manufacturing and service sectors. This slowdown may be welcomed by the gold bulls, however, as it may keep the Fed on hold. The gold market appears to have entered a phase in which it may see bullish price action on poor economic data and bearish price action on any economic positives.

 

The PMI data not only showed economic activity, but also pointed to rising inflation as well. The report showed a rise in input prices, and that rise may be set to continue as the economy deals with higher costs due to labor and material shortages. If demand continues to cool off further, however, it could alleviate some of the inflationary pressures and bring prices back down to earth.

 

This week is likely to be key for the gold market as the Fed may provide clues about its plans. A dovish Fed and a corresponding weaker dollar could hold the keys to sharply higher gold prices in the months ahead. If the Fed hints at maintaining the current status quo, look for the price of gold to rally.

The gold market is testing some resistance just below the key resistance level of $1800 following some weaker than expected economic data. The latest data on retail sales showed a decline of 1.1% in July, down from the revised June reading of a .7% gain. The data was a significant miss as consensus estimates were looking for a rise of .2%.

 

The reaction to the poor data by the gold market is in line with what may be expected at this point: Poorer data may equal stronger gold and stronger data may equal weaker gold. The market is strongly hoping for the Fed to hold its current rate stance and to continue with its monthly security purchases. Any stronger than expected data may give the central bank further reason for pause and could eventually cause the Fed to begin tapering its asset purchases or quantitative easing.

 

The headline data was certainly a disappointment. The world is continuing to battle the raging Delta variant as the viral pandemic remains a major obstacle to global growth. With the consumer representing some two thirds of the economy, any cuts in consumer spending are going to hurt. This is not the first instance of consumers cutting back in recent months, either, and could potentially point to a dangerous trend.

 

As the battle over Fed policy continues, any key beats or misses in the data stream are likely to become increasingly impactful on the markets. The gold market may need weaker data and a weaker dollar in order to move higher from recent levels. The market appears to be lacking any fresh catalysts, and without a bullish catalyst the market may remain quite vulnerable to downside selling pressure if or when it occurs.

 

In the aftermath of the crippling effects of the Covid-19 virus implemented just a year ago, the globe is now facing the Delta variant of the virus. This variant is having a major impact on some areas, with China and some parts of asia being hit especially hard. The U.S. is also being hit hard, and the threat of a mask mandate or other action may keep investors and markets on the defensive for the time being.

 

With so many major issues to deal with, the Fed’s Jackson Hole Symposium, to be held next week, will almost certainly be closely monitored. The Fed may provide further clues and clarification on what it sees occurring in the U.S. and global markets. Those clues may be useful in determining the Fed’s plans or next steps and may assist investors with planning accordingly. Recent word has suggested that the Fed could begin tapering its monthly security purchases by November. Any thoughts backing up this notion may be viewed as bearish by markets. Any thoughts to the contrary, however, may be viewed as bullish and could fuel a significant rally in the yellow metal.

 

The market bulls are gaining control on the daily chart and have positive momentum on their side. The bulls will look to take prices back above previous support at $1800 on a closing basis. The bears will look to take prices back down, targeting key support at the $1700 level.