The gold market was under some pressure earlier in the session. Following the June CPI print, gold moved rapidly lower down to a level of $1707. The metal quickly reversed, however, and now is up sharply on the day by nearly $15 per ounce. Despite the numerous bearish issues gold currently faces, the bulls have done a good job of absorbing the selling pressure. This could bode well for gold in the medium and long-term and may lead to an eventual reversal and rally on the daily chart.

 

The release of the Consumer Price Index data, unveiled earlier today, may become a serious anxiety-producer for equity market bulls. The reading for June CPI came in hot, and even hotter than expected with a year-over-year reading of 9.1%. The blistering, 40-year high for inflation may have some adjust their thinking about the Fed and interest rates. There is now an excellent chance the Fed will see fit to hike another 75-basis points later this month. Expectations for a larger increase, such as 100bps, may now be on the rise as well.

 

The hotter than expected CPI figures do not coincide with some lower commodity prices, such as crude oil. A lower basket of commodities may have fed the notion that inflation could have already peaked. Data like today’s, however, could tell a very different story.

 

Outside market action today is bearish for gold. Crude oil is lower again today, currently trading around the $95 per barrel level. The dollar hit a fresh 20-year high and yields climbed significantly in the aftermath of the CPI release. Ten-Year Notes are now fetching over 3% again and could be poised to rise further in the days ahead.

 

The bears remain in control on the daily chart. The bulls have significant work to be done, and their first order of business mahy be to produce a close above resistance at the $1800 level. The bears will look to push prices lower and produce a close below the $1700 area.

 

The gold market remains in neutral territory, although the bears have clearly demonstrated their poise at this point. With the bulls absorbing all of the selling thus far, however, it begs the question of who may win the current tug of war. That will likely come down to a few factors. Has inflation begun to peak already? Will the Fed have to remain very aggressive? Could the war in Ukraine come to a close anytime soon? These are all questions that may need to be answered before gold finds its footing one way or the other. In the meantime, the bulls are likely to keep accumulating gold as its long-term bullish narrative remains unchanged. For those that are focused on the long-term value rather than the short-term fluctuations, gold may represent an excellent value at current price levels which may not be seen again once the market takes off.

The gold market is lower again Monday as numerous issues weigh on the metal. A stronger dollar was a large factor in today’s price action as speculative positioning is now close to neutral. Bearish bets on gold have increased recently as hedge funds have dropped the metal, and long specs have seen a dramatic decline that has taken the number of longs in the marketplace to the lowest level in three years. Having become what some might consider overly bearish in recent weeks, the gold market could be ripe for a turnaround as capitulation could be seen soon.

 

Markets are awaiting what will likely be the key data point of the week in Wednesday’s Consumer Price Index, or CPI. The data is expected to be hot, showing a year-over-year rise of 8.5% for the month of June. This would follow the hot reading for May, which showed a rise of 8.6%. The inflation reading for June could potentially be market-moving. A hotter than expected figure could send investors running for the exits in masse. A miss on the data, however, could fuel a substantial tally for stocks and risk assets as it could point to inflation having already peaked. This could alleviate some of the fears over a Fed-induced recession coming this year and could send risk assets sharply higher.

 

Markets are also eagerly awaiting the July FOMC meeting later this month. It is widely expected that the Fed will again raise rates by 75-basis points in an attempt to get a handle on inflation. It is far more unclear, however, what the Fed may do in the coming months. While the central bank could continue to raise rates by 75-points or even more at a crack, it may be more likely for the Fed to take a more moderate approach and raise rates by 25 or 50-points at a time. Whatever the Fed decides to do, or not do, it could have significant effects for global markets.

 

Some analysts have suggested that gold has held up well, given the environment and the dollar at 20-year highs. Other analysts, however, feel that further downside cannot be ruled out and may even be likely. The bears will need to produce a close below the $1700 level to attract fresh shorts. The bulls, on the other hand, need to push prices back above the $1800 level to even get started. The $1900 area may be even more important. A close above this level could attract a fresh wave of buying that could put gold on a sustainable track higher.

 

Gold could be getting ready for a reversal as many other commodities prepare for some mean-reversion. Gold has stood around its 100-week average for the last year or so as other commodity markets have taken off and become arguably stretched. That overbought condition may soon work itself out and could send many commodities lower. Gold could, at the same time, embark on a significant reversal and possibly even embark on a fresh run higher.

The gold bulls appear to be taking a bit of a break. In the last two sessions, prices have declined from well over the $1800 level to a current price of around $1738. The bears came out aggressive again today, following up on recent declines. The bears took prices right through support at the $1750 level and now may be poised for a test of $1700 in the days ahead.

 

The release of the Fed meeting minutes was likely the biggest economic data point for the day. The minutes did not contain any surprises, however, as the central bank appears to be remaining focused on inflation rather than growth. The minutes showed Fed officials agreeing that inflation risks are to the upside, and cited several of those risks that include supply-chain bottlenecks and rising commodity prices. The Fed appears ready and willing to hike rates by another 75-basis points at its next policy meeting.

 

The notion of the Fed doing another large rate hike and keeping up with its plans to battle inflation may have some worrying over a Fed-induced recession. Should the Fed continue to hike rates aggressively, it could, in fact, slow the economy down enough to put it into recession. Some have argued, however, that the economy is plenty strong and can tolerate further rate hikes without a problem. Of course, time will tell. The concern over a recession may keep market participants on edge for the months ahead, and may lead to further volatility and selling across risk assets.

 

The Fed could come under increasing pressure as it looks to normalize policy. Should a recession hit, the central bank could see significant pressure to halt its rate increases or to even reverse course and start easing again.

 

For the time being, the Fed seems willing to stay the course and continue tightening policy. The Fed could change its mind, however, and do so quickly if public and/or political pressures warrant it. The Fed seemingly wants to remain on the hawkish side of the ledger for now, and to communicate its intentions as clearly as possible.

 

Now that the bears have taken out the $1800 level on a closing basis, the path of least resistance is lower. Having taken out the $1750 area today, the bears may now target a test of the $1700 level in the coming days. Should this area fail to hold, the metal could find itself headed sharply lower, and doing so quickly. The bulls have a lot of work to do. They must first produce a close above the $1800 level and then the $1900 level to attract any momentum. With a close above these levels, amny rallies could prove to be limited in nature and result in large sell-offs. With volatility likely to expand, however, gold could find some buyers and bargain hunters if it dips any further. More selling in stocks and risk assets could also see capital finding its way into the gold market.

After spending several weeks moving sideways, the gold bears appear to be trying to take control of the market. Prices have been under pressure for days now, and on Friday the bears were able to push spot gold prices below the $1800 level. The market has since come back several dollars per ounce, and currently sits around the $1809 level. Whether the bears are able to maintain control is  another question entirely. The first few days of next week should provide a clearer picture on where gold may be headed.

 

The gold market has several balls in the air right now that could affect prices going forward. Inflation,  the war in Ukraine and the threat of recession to name a few. While inflation remains a key area of market concern, investors do appear to be becoming increasingly alarmed about the possibility of recession. The Federal Reserve has already hiked rates a few times, including its recent 75-basis point hike. It has been suggested, and acknowledged by the Fed, that it could overstep in its plans for higher rates. Should the Fed hike too far too fast, it could result in a recession hitting not only the U.S. but the globe. Fed Chief Jerome Powell has acknowledged this risk recently. Powell and the central bank are of the opinion that inflation is a greater economic risk than a recession.

 

If the Fed is unable to get price pressures under control, and soon, inflation could become entrenched. This could prevent the Fed and global central banks from seamlessly adjusting policies when they see fit, as price pressures would become more of a constant rather than a temporary phenomenon. The bottom line is that central banks could have a much more challenging time trying to manage economies and monetary policies. This could itself lead to recessions and may pose a far greater long-term threat.

 

The gold bulls may be forced to await some fresh, bullish inputs before gaining the strength to take the market higher on a sustainable trajectory. Long-term gold buyers appear comfortable buying around current levels, and any further declines could be aggressively purchased by long-term investors. The bulls could gain significant further excitement, however, if they are able to produce a close above the $1900 level. Nearly $100 away at this point, the bulls have their work cut out for them to get there and sustain those gains.

 

The gold bulls not only need to prevent any further downside, but also need to get things going to the upside. There are several issues that have the potential to give gold a major boost. These issues include the war in Ukraine, inflation and Covid-19. If any of these issues see a flare-up in the weeks ahead, gold could potentially do a rapid about-face and could start heading higher and doing so quickly. A short-covering rally could also fuel the bulls’ efforts and could see prices rise substantially in a short period of time.

The gold market is drifting a bit lower in early afternoon action on Wednesday as the dollar moves higher. The midweek dollar rally is keeping the gold bulls at bay and could have a lasting effect on the market if it continues to ascend. The dollar is likely taking its cues from the uncertainty in the marketplace currently as well as the aggressive nature of recent Federal Reserve interest rate hikes. The dollar may keep moving higher and strengthening as long as the Fed maintains its recent aggressive position and rhetoric. Should the Fed elect to pause or reverse course, however, the dollar could quickly see much of the air let out of its balloon, possibly benefitting gold in the process.

 

There has been increasing discussion recently about the Fed possibly going too far and putting the economy into recession. Following the central bank’s recent surprise 75-point rate hike, the concerns over an overly aggressive Fed are likely to increase substantially. The Fed will almost certainly raise rates by another 75-basis points at its next meeting, and could continue to do so at additional meetings beyond the month. The Fed has said that it intends to combat inflation using all of the tools within its arsenal, and raising interest rates significantly is probably the simplest way the central bank can slow price pressures. The question is:will it be enough?

 

Some analysts have already suggested that the Fed will be unable to raise rates enough to put a dent into inflation. They have further stated that to do so would require interest rates at Volcker-era levels. Markets seem to be nervous already about rates going to 3%. How would they react to an interest rate at or approaching 20%? It would likely be messy, so messy in fact that the Fed would almost certainly not even entertain taking rates anywhere near that level. As the recession risks increase along with higher rates, the Fed could elect to take a pause or even reverse course and start lowering rates once again to boost the economy. Whatever the central bank decides to do, it is likely to involve a period of significant pain.

 

Fed Chairman Jerome Powell recently stated that he believes inflation represents the most serious economic threat. If price stability is not soon restored, it could lead to a permanent transition from low to high inflation. Powell seemingly recognizes that the clock is also ticking to get inflation under control. The longer price pressures remain, the greater the risk of inflation becoming entrenched. Powell’s commentary seemed to suggest that the Fed will stay the course and will keep raising rates as it deems necessary. While acknowledging the recession and other risks in doing so, Powell believes that allowing inflation to become entrenched would be the worst case scenario. Investors may want to prepare themselves for a recession, it seems, as the Fed could very well be sending the economy there in the months ahead.