The gold market is higher again today, having pushed slightly above the $1750 level. Gloomy economic data is the primary factor in today’s upside, with the Federal Reserve possibly taking a more dovish approach also playing a role.

 

The U.S. economy unexpectedly showed a contraction for the second-quarter today. Consumer spending was at its slowest pace in some two years and business spending also declined. These could fan the fears of a coming recession or possibly even point to a recession already being in place. A slide in U.S. Treasury yields today also fueled upside for gold and could continue to do so if yields continue to descend.

 

With today’s GDP data seemingly confirming recessionary fears, the Fed may find itself having to slow the pace of further rate hikes or raise rates in smaller increments. Yesterday, the Fed raised rates by another 75-basis points. The gold market seemed to be pleased the Fed did not hike by 100-points, and a relief rally ensued once the announcement was made.

 

Fed Chairman Powell left the door open for what the central bank may do come September. He said that another large rate hike is a possibility, but the Fed would watch the data until then and allow it to dictate Fed action. The commentary from the Fed Chief was noticeably less hawkish than previous commentary and could point the way towards a Fed pause or even reversal.

 

The next several weeks may see little price action in gold as the summer doldrums are in full gear. The market may begin to make a meaningful move come the end of August, however, in just a few short weeks. Until that time, the markets may pay close attention to the data stream as well as any fresh developments out of Ukraine. Should more weaker-than-expected data be released, the chances of another large Fed hike may dwindle substantially. If the data steam shows strength, however, the Fed could be forced to consider an even larger 100-point rate hike.

 

After providing a degree of relief yesterday, the Fed may now consider its approach. Months of hawkish rhetoric have been followed up by several rate hikes this year. The Fed has, thus far, preserved whatever credibility it has. The Fed may now, however, find continuing aggressive rate hikes even more challenging and it could see fit to reverse course.

 

Until more clarity is seen on policy and what the Fed may do, the gold market may remain mostly sideways. The bulls have done a good job so far of absorbing much of the selling pressure. Whether they can continue to do so remains to be seen, but will likely become known in the weeks ahead.

 

In the meantime, the $1700 and $1800 areas remain key technical levels within the gold market. Whichever side is breached on a closing basis could point to more movement in that direction. The recent volatility contraction could point to a large move ahead.

Ahead of this week’s FOMC meeting and the likely hike in interest rates that will follow it, the IMF is now warning about the possibility of a global recession. According to the International Monetary Fund, global growth is now expected to decline .4% to a rate of 3.2% in 2021. The decline in growth was the result of several factors. Covid-19 was a major influence on the economic slowdown as well as the war in Ukraine.

 

The IMF appears to be ringing the alarm bell a bit late. Many have been concerned over a Fed-induced recession for months now. As it looks to combat rampant inflation, the Fed has been raising interest rates aggressively and may continue to do so in the months ahead. The central bank is expected to raise rates by 75-basis points this week while a 100-basis point hike is also a possibility. Should the Fed elect to raise rates by 100 bps this week, it could send a strong message to markets that the Fed means business and intends on staying on course.

 

Should the Fed stick with another 75-point rate hike, it is still a solid raise and will also show the Fed’s commitment to getting price pressures under control. The Fed may need to preserve its credibility as much as possible. Some are already suggesting the Fed will end up taking a pause after another rate hike or two. The central bank could then decide to reverse course, lowering rates to bolster the slowing economy.

 

The fact that the IMF is now sounding alarmed may add more pressure to the Fed in the months ahead. The Fed has stated it believes inflation to be the number one enemy of the economy. The Fed seems willing to tolerate a recession right now in order to get inflation under control. The Fed must watch its step carefully, however, as one misstep could send the economy into recession as inflationary pressures remain robust.

 

Although the IMF still expects positive growth in the years ahead, that growth may depend on how well economies are able to tolerate higher rates and tighter policies. Risks to the economy, cited by the IMF in just April, are now materializing. These include Covid-19 issues, food shortages and more.

 

The next several months are likely to be bumpy for sure. As the bumps increase, market volatility may do the same. As volatility expands, the desire for physical gold could increase. Although the bears are now in firm control of the daily chart, the bulls have numerous issues that could potentially cause a major reversal.

 

For the time being, the market still needs to stage a breakout or breakdown from recent levels. The bears are targeting a close below the $1700 level. The bulls need to see a close above $1800 and then the $1900 levels before getting excited. As volatility has shrunk in recent weeks, the market may be getting ready for a major move higher or lower.

The question of how gold may fare in the weeks ahead has become increasingly about its ability to tolerate another 75-point rate hike next week. The yellow metal has ended a five-week losing streak but still has numerous obstacles in the way of higher prices.

 

After the European Central Bank, or ECB, raised rates for the first time in over a decade this week, the U.S. Fed is widely expected to do the same next week. The Fed is expected to raise rates by 75 basis points, if not 100, on July 27th.

 

Another large rate hike from the Fed next week is seemingly a foregone conclusion. How the hike could affect the dollar and gold remains to be seen, however. After hitting a 20-year high in recent days, the dollar has backed off a bit from recent highs. Dollar weakness may be nothing more than some short-term profit taking, and the currency could easily resume its trend higher next week after the Fed raises rates.

 

The dollar has been moving higher based on the notion of an aggressive Fed and higher interest rates and widening rate differentials. The greenback recently hit parity with the euro for the first time in many years and could maintain its growth against the shared currency in the months ahead.

 

The gold bulls have their work cut out for them for sure. There was some encouraging price action this week, however, that could point to some further upside. After sliding lower earlier in the week, the gold bears took prices below the key $1700 level. Price could not be sustained there, however, and the bulls jumped in to buy and the market closed well above the $1700 level. On Friday, the bulls built on some gains seen late Thursday and have now put some distance between current prices and the $1700 area. Whether those gains hold after another large hike from the Fed is unclear.

 

Despite gold’s recent slide and a lack of any upside, the long-term narrative for gold remains unchanged. Massive sovereign debt, dollar weakness, and economic uncertainties may all play a role in gold’s eventual upside. Central banks and governments all over the globe hold massive amounts of physical gold, and with good reason. Gold can provide them with credibility for their respective currencies, it can provide portfolio diversification and it can also even give them peace of mind.

 

Taking into account the fact that the largest and most powerful financial institutions on the planet buy and hold physical gold, shouldn’t you consider doing the same? Gold at $1730 may prove to be a bargain-basement price in the months or years ahead. Current prices in gold may not only be temporary but may never be seen again once the metal takes off.

 

Focus on the long-term, not the short. If you see gold as a value add, then now is the time to be buying it. Don’t be alarmed by short-term volatility and price swings, either. Just focus on the metal’s long-term, bullish narrative and trend and buy what you can afford to buy.

 

There has not been much to report on the gold market in recent weeks. The bears did cause prices to slide, however, and the market has been eyeing a test of the $1700 level for days now. Volatility within the market has seemingly collapsed in what could be a sign of a large move to come. That large move could be on the downside, given the current trend lower and other factors. Safe haven buyers have mostly stood by on the sidelines as risk appetite has returned to a degree.

 

Corporate earnings remain the center of attention for stock investors. Stock buyers have been able to rekindle prices on the daily chart, which are now in a short-term uptrend. Whether that trend continues remains highly questionable, however, as numerous bearish factors remain in play. Despite the trend higher for equities, however, the markets remain vulnerable to whims as summer trading doldrums take hold.

 

In what is perhaps the data highlight of the trading week, the European Central Bank is set to meet tomorrow and is expected to raise interest rates. The ECB could hike rates by .5% in the first hike done in some 11 years. Any move by the ECB tomorrow is likely to be followed up by the U.S. Federal Reserve next week. The Fed is highly likely to raise rates by another 75-basis points next week, with some even suggesting that a full, 100-point hike is possible. Not wanting to upset equity market investors, the Fed may err on the side of caution and stick with just a 75-point raise.

 

Worries over a Fed-induced recession remain robust and could be exasperated next week should the Fed raise by 75 or more points. The 2/10 year bond yields remain inverted today, in another worrisome sign of recession. Despite the risk of recession, the Fed has stated time and time again that it intends to get inflation under control and not allow it to become entrenched. Seeing this as the worse of two evils, the Fed may continue raising rates throughout the end of the year or beyond.

 

Yields have been on the rise again in recent action. The benchmark 10-Year Note is now fetching a yield of over 3.16%. The dollar is slightly stronger at midday today while the crude oil market dips. Outside markets may be pointing to some more difficult times ahead for gold. Despite that, however, the long-term bullish narrative for gold remains unchanged. Massive sovereign debt levels, weaker fiat currency values and other economic worries may all support gold in the months and years ahead. For the time being, the bulls may need to simply absorb more selling pressure until a fresh catalyst fuels a reversal. Once a reversal takes hold, the market could potentially skyrocket quickly as shorts are forced to cover and as FOMO sets in. The bulls will need to produce a close above the $1900 area before longs start getting excited and jumping in.

The gold bears have gained some momentum this week. The bulls have held the bears from doing even more damage, however, in what may be viewed as a market positive. The bears took the price of gold below the $1700 level Friday before the bulls jumped in and took prices back above this key level. The $1700 level may become a large tug of war in the days and weeks ahead. Whoever can establish dominance in this area may see prices go their way in the weeks ahead.

 

The gold market has been hit recently by a barrage of negative items. Inflation remains at a 40-year high. Because of this, the Fed is likely to hike rates again this month by 75 if not 100-basis points. The notion of an aggressive Fed and higher interest rates has sparked a rally in the dollar, which now sits around a 20-year high. Yields have also gotten a lift recently, with the benchmark 10-Year Note now yielding over 3% again.

 

The dollar strength and higher yields have had a severe impact on gold, and may keep any upside limited for now. If the dollar were to stage a reversal at some point, however, the gold bulls could take advantage and pounce on lower prices.

 

While inflation remains a point of market concern, commodity markets have been providing some signals that perhaps inflation has peaked. Declines in crude oil, cotton, copper and more may all point to easing price pressures in the months ahead. Not only that, but these easing commodity markets may also be signaling that a recession has already arrived or is very close. Should the economy enter recession, the Fed could elect to take a pause from its rate hikes or to even reverse course. If this happens, gold could benefit handsomely as it could drive the dollar and yields lower.

 

Whatever it may prove to be, the gold bulls do need some fresh, bullish catalyst to take prices higher. The bulls have been lacking any significant bullish news for several weeks now. During that time, the bears have taken and maintained momentum as prices declined from well over the $1800 level to near the $1700 level. Although the market may now be oversold, there is not much to hold it up except the willingness of bargain hunters to jump in and buy around current price levels.

 

The bulls have significant work to be done in order to get prices moving higher on a sustainable trajectory. The bulls must first produce a close above the $1800 level to negate some of the recent bearishness. A close above $1900 would be even better, as it could attract a wave of fresh longs into the market and possibly send it back towards all-time highs. For the time being, however, the bulls will need to try to avoid a close below $1700. A close below this level could set the stage for more downside and a longer road higher again for the bulls.