The gold market is on sale now, as prices nearly hit a 2.5-year low Thursday. The yellow metal is being hit by a number of bearish factors, including recession worries, demand concerns and a hawkish Fed. With spot prices now well below the $1,700 level, there may be little in the bears’ way of taking the market sharply lower. The metal could see $1,550 before finding some solid footing and any rallies in the meantime could prove to be short-lived.

 

Precious metals investors are concerned about the health of the economy. With the Federal Reserve likely hiking rates by another 75 points next week, possibly even 100 points, worries over a major economic slowdown may weigh on gold for some time. A slower economy could equate to less demand for metals from both investors as well as commercial users and could keep prices depressed for an extended period of time.

 

The U.S. Fed is not the only source of concern. Other global central banks are also looking to tighten policy, and the global environment of rising rates may weigh on the global economy. Not only that, but recent data out of China has not been great. A decline in several key areas of the globe’s second-largest economy could spell trouble for the rest of the world. Unlike other central banks, China has been easing policy to boost its economy. China is likely to continue to ease despite being the only major economy to do so.

 

Stocks are under pressure Thursday as treasury yields rise. Higher yields may also keep gold under pressure in the months ahead and could also bolster the dollar. Higher yields and a stronger dollar have been a major roadblock to higher gold in the last several months and may continue to act as such in the months ahead. A hawkish Fed statement next week along with an aggressive rate hike could keep the dollar climbing and may also keep upward pressure on yields. The trends in yield and the dollar are unlikely to change anytime soon and may remain in place until the Fed takes a more dovish tone.

 

The months ahead may become increasingly challenging for markets across the board. If the U.S./ does enter recession, the stock market and risk assets could take a significant tumble. As the economy slows, demand for commodities such as silver and gold could also take a hit. Trouble in the Chinese economy may only reinforce a drop in demand and could keep commodity markets under pressure.

 

The decline below the $1700 level may keep the bears on the move. There is little to stop the market now until the $1550 level is reached, and that area could be seen sooner rather than later. Volatility in the gold market could potentially rise now that the market is on the move again, and any rallies may be sold into until proven otherwise.

The biggest economic data point of the week has now come and gone. The latest reading on the Consumer Price Index was not a good one, either, and took with it any hopes for the Fed to take it easy this month when it meets to hike rates again. The Fed will now almost certainly look to raise rates aggressively again, which could mean the third 75-point hike in a row.

 

The CPI data today showed inflation remaining red hot. Year-over-year, inflation jumped by a whopping 8.3%. Estimates were looking for a rise of 8%. Despite some recent signs that inflation had perhaps cooled off a bit already, today’s CPI data shows the opposite. Inflation not only remains smoking hot, but could get hotter before finally cooling down. This pits the Fed into a poor position. The central bank will now likely see itself having no choice but to continue raising rates aggressively. That means a large hike later this month and possibly more large hikes before the end of the year.

 

Stocks are taking it on the chin today. The Dow Jones Industrial Average is down by 700 points in early action. Today’s equity declines could be a foreshadowing of what may lie ahead for stock investors. Stocks do not like inflation nor do they like higher interest rates. Both of these may weigh on equity markets for the foreseeable future and could drive capital from stocks into alternative assets such as gold.

 

The fight against inflation could rage on further for some time. The question may become whether the Fed is willing to take rates where they may need to go to get inflation to manageable levels. That remains to be seen, but for the time being the central bank still has plenty of room to take rates higher from recent levels. A series of additional hikes by the Fed may really start to get the markets’ attention. This could not only fuel a massive spike in volatility but could also drive a shift of investment capital into alternative asset classes.

 

Inflation may not be the only major market driver in the months ahead. The current state of geopolitics is very messy and could also weigh on investor sentiment and risk appetite. As the war in Ukraine continues, concerns are now growing that China could invade Taiwan. A Chinese invasion would be bad on several levels, and could be the starting point for the Third World War. The U.S. and the west would likely see no alternative but to get involved. The involvement of the west could lead to other eastern or Asian players also getting involved, and that could lead to quite a geopolitical mess. Markets could potentially tank under such a scenario, and gold could possibly see much investment capital finding its way into the metal under such circumstances.

As the globe’s second-largest economy, any issues affecting China will not be taken lightly. The Chinese economy has already slowed and could slow further. A period of war or aggressive saber-rattling is not what the global economy needs right now. Such issues could put the economy into recession and keep it there for some time.

The gold market finished the trading week on the strong side of the ledger, moving higher by about $7.50 per ounce. The bulls are trying to put some distance between spot prices and the $1700 level. Although spot prices remain below the $1720 level, the bulls do now have a bit more breathing room.

 

The gold market has been largely sideways for months now. The past several weeks have seen little in the way of sustainable movement as the market awaits the next FOMC meeting later this month. The Fed has been the source of much confusion and speculation in recent weeks and the meeting may provide markets with some more clarity about the central bank’s intentions.

 

The big question being pondered by investors right now is how far the Fed may be willing to go to tame inflation. Price pressures remain near 40-year highs. There have been some recent signs of inflation possibly having peaked already, however, and markets are paying close attention to them.

 

In addition to the inflation situation, markets are also watching the economy closely and monitoring it for recession. The U.S. could possibly be already in a recession, and some recent data from China may indicate that the world’s second-largest economy is not far behind. Worries over the possibility of a recession have been on the rise in recent months as the Fed has, thus far, stood its ground and continued to hike rates aggressively. More of that is expected this month when the FOMC meets again. Fed Funds are pricing in near even odds of either a 50 or 75-point hike this month.

 

The Fed is likely to finish out the year on the aggressive side, likely hiking rates until the end of the year. After a few more hikes are implemented, however, it becomes far less clear what the Fed may or may not do. Some have suggested the Fed is likely to take a pause in the new year, or even reverse course and begin easing policy as tighter conditions take their toll.

 

What this may mean for the gold market is also unclear. A looser Fed could, however, dent expectations for the dollar and treasury yields, bringing both down in the process. Any significant weakness in yields or the dollar could be bullish for gold and could potentially fuel a sustainable rally higher. The bulls could try to push prices higher in the near-term. Any moves higher right now would be suspect, however, as the market may currently be lacking the necessary ammunition for a sustainable run to the upside.

 

The next several weeks will see the gold bulls target the $1750 and $1800 levels. If able to produce a close above $1800, the bulls could find themselves in business for a run to the upside. The bears are trying to produce a close below the $1700 level and if able to do so could see prices embark on a fresh and significant leg lower.

 

The gold market is higher today as the non-farm payrolls data was a bit better-than-expected. According to the report, the U.S. added 315,000 jobs in August. Consensus estimates were looking for an increase of 295,000 jobs. While this headline figure is solid at first glance, the report did also contain some negatives. Both June and July were revised lower, with June seeing a sharp revision of over 100,000 jobs.

 

On the plus side was wage growth not growing as quickly as expected. Wages were up .3% in August while estimates were calling for a rise of .4%. The slower wage growth could potentially point to inflation easing a bit and possibly already having peaked. While this may at first appear to be bearish for gold, it could also be construed as being bullish if the Fed does not have as much reason to continue its aggressive tightening.

 

The Fed is still quite likely to tighten rates later this month at the next FOMC meeting. The Fed Funds rate is seeing heavy betting to be increased by another 75-basis points when the Fed does meet. Nearly all discussions of a Fed pivot away from the inflation fight have dissipated. Chairman Powell has tried to make it abundantly clear that the central bank sees inflation as the biggest risk to the economy and will look to get it back to desired levels regardless of the consequences.

 

Gold and other markets could find themselves trading range bound until the next FOMC meeting this month. Gold has seen its market volatility largely dry up in recent weeks, but that could change if the Fed does or says something unexpected in a few weeks when it meets again. In the meantime, the $1700 and $1800 levels are still technically significant.

 

The bears took prices below $1700 on Thursday but failed to maintain that action on Friday. The lack of follow through is nothing new for gold, however, and at this point may be expected. The bears do seem to have the edge, however, despite Friday’s market strength. This could lead to another test of $1700 next week If able to produce a close below this level, the bears would be in firm control and may embark on a fresh leg lower in price.

 

How low gold could possibly go is another question entirely. The long-term narrative for gold remains highly bullish. The U.S. and other nations are riddled with massive, unpayable debt. Paper currencies will continue to lose value as they have done for millennia. These and other issues may keep gold on the rise over the long run. Gold may become the only reliable and useful form of money left on the planet at some point. When it does, its value is likely to be sharply higher than current levels. Gold at $3000, $5000 or even $10,000 per ounce or more is not only not out of the question but increasingly likely.

The gold market is under some light selling pressure in early action Wednesday. The yellow metal has remained lower despite the ADP jobs figures coming in lower-than-expected. The ADP employment data showed a rise of just 132,000 jobs in August. Estimates were looking for an addition of 300,000 jobs.

 

Although some analysts may use the ADP data as an estimate of non-farm payrolls figures due Friday, the ADP data has never been much of a predictor. ADP has been on hiatus to revamp its methodology. The company now seeks to outline its own views of the economy rather than being an estimate of non-farm payrolls figures. Despite the miss in the data, gold showed little to no reaction.

 

The gold market is moving further away from the $1750 level as the bears gather some steam. The major test, however, would be at the $1700 level. If able to produce a close below this level, the bears could force more longs to exit the market and a fresh wave of sellers to enter it. This could, in turn, drive the price of gold sharply lower before it finds more stable footing.

 

The bigger jobs report will be released Friday and could be market-moving. If the non-farm payrolls figures also miss expectations by a wide margin, it could give the Fed much to consider in the weeks until the next FOMC meeting next month. If the data is in line or better than expected, however, it would almost certainly cement an aggressive rate hike from the central bank next month. Given some recent commentary from Fed Chairman Powell, it does not seem likely that the Fed will start to pivot away from fighting inflation anytime

soon. In fact, the Fed may now continue hiking rates aggressively until the end of the year, possibly putting key rates at or above the 4% level by year’s end.

 

Should the Fed maintain its aggressive policy stance, stocks and risk assets could eventually come under increasing pressure. If stocks do roll over again, gold could possibly see some of that capital coming into the market in the months ahead. The question may become, however, at what point does the opportunity cost begin to weigh on gold.

 

With rates around the 4% level at the end of the year, it seems unlikely any investors would be scared away from gold. Depending on what the Fed decides to do next year, however, that could change. The Fed may also not desire to hold rates at elevated levels for any longer than it has to to get inflation under control. Once it has accomplished that task, the Fed could then look to begin easing once again and gold could see significant buying once the threat of higher rates is removed. For the time being, the market may remain mostly sideways and maintain a range until more clarity is provided by the Fed.