Bulls Step In To Buy The Dip

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The gold market is higher Tuesday as the bulls step in and buy the dip. The day’s gains are keeping the recent uptrend alive and have pushed spot prices back to resistance at the $1850 level. Stock market weakness and crude oil strength may also be playing a role in gold’s upside today as bargain hunters pounce after recent price weakness. Not much has changed in the gold market in recent weeks, and the period of price consolidation could be nearing an end.

 

Inflation remains a major market influence and one that will likely continue to affect gold for months or years to come. Treasury Secretary Janet Yellen will be grilled by lawmakers today and Wednesday concerning the Biden Administration’s budget plans as well as how it plans to deal with rampant inflation. Yellen will likely discuss more of the same, suggesting that rate hikes may take care of inflation without slowing the economy down too much. Should Ms. Yellen express different concerns or a varying point of view from other officials, it could upset investors and produce a new wave of uncertainty within markets that could heighten volatility and increase selling in risk assets.

 

The Federal Reserve has already said it would use all of the tools at its disposal to combat inflation. Whether the central bank actually follows through with this plan is another source of concern for markets. The Fed is not known for always doing what it says it intends to do, and the pressure on the central bank is likely to mount considerably as stocks and risk assets sink further on higher interest rates. The true test of the Fed’s mettle likely won’t be seen for a few months, until it has had the chance to raise rates significantly higher from current levels. The risk of the Fed pausing or reversing course must be considered, as it could lead to an extended period of stagflation.

 

More inflation data is due for release later in the week. The European Central Bank is meeting Thursday and will likely lay out its plans for tighter policy in the months ahead. The U.S. Consumer Price Index is set for release on Friday. CPI is expected to show a rise of 8.2%, following April’s rise of 8.3%. A stronger-than-expected reading could send markets into a tailspin while a weaker-than-expected figure could provide some needed relief.

 

The gold market remains in no man’s land currently although the bulls are now showing some signs of life again. Spot gold is currently at $1850 on the nose. A breakout above this level in the days ahead could signal a rally, and prices could rapidly be lifted to attempt a breakout above the $1900 level. A failure near current levels, however, could have the opposite effect and could see prices decline significantly, possibly testing the $1800 level in short order. A breakout above $1900 or a breakdown below $1800 could dictate gold’s movement for the months ahead.

$1850 Still Elusive

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The gold market is slightly lower in early trade Monday as the new trading week gets underway. Spot gold prices are just below key resistance at the $1850 area and could be pushed lower if the bulls fail to retake this level again very soon. Also adding support for gold are a lower dollar and stable treasury yields. Higher crude oil may also lend a hand as oil prices hit the $120 level overnight. Stocks are solidly higher in early action today as some degree of risk appetite is present. Easing Chinese Covid restrictions may be largely responsible for higher stock markets today, although it is important to keep in mind that restrictions could be enforced again at a later date if the virus sees a rapid spread again.

 

Although the week is full of data points, there are two key points that could influence market action this week. The European Central Bank will be meeting this Thursday, holding its regular monetary policy meeting. Investors will also see the latest data for the Consumer Price Index due for release on Friday. The CPI figures may be an area of focus for markets and is expected to show a rise of 8.2% following an April rise of 8.3%.

 

The meeting of the ECB may send another shot across the bow regarding global inflation. The central bank is likely to lay out its plans for tightening monetary policy as the European Union also wrestles with rampant inflation. Any aggressive rhetoric or plans of action from the ECB could move markets as the battle rages on between policy doves and hawks. The hawks seemingly have a strong upper hand currently and tighter policies may be expected not only in Europe and the U.S. but elsewhere as well. The global tightening period is already underway, and central banks will need to navigate the waters with extreme care. Overly aggressive action from global central banks could put the world economy into recession, while underwhelming action could allow inflation to accelerate even further.

 

The gold bears are still in control on the daily chart. A 2.5-month downtrend has now been negated, however, and the bulls appear to be working to establish a fresh trend higher. The $1800 and $1900 levels remain key for the market. The bulls and bears will look to produce a close above or below these levels and that close could determine price action for the months ahead. The bulls will, in the near-term, seek to take prices back above previous support at the $1850 level. A close above $1850 could encourage more buying interest and the market could then make a rapid run towards the $1900 area. A failure by the bulls to extend prices higher in the weeks ahead could provide ammunition for the bears. A downtrend could again develop that could take prices well below the $1800 level, possibly not stopping until the $1700 area is reached.

Any sharp dips in the price of gold are likely to be aggressively bought at this stage, however, and any moves lower may be very short-lived in nature.

Gold Weaker As Jobs Data Beats

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The gold market is being sold off Friday after the non-farm payrolls data beat expectations. The non-farm payrolls data for May showed a rise of 390,000 jobs with estimates looking for a rise of 328,000. The unemployment rate did not dip, however, and stood at 3.6%. Average hourly earnings also rose by 5.24% annually. The gold market did not show much of a knee-jerk reaction to the figures, but has since grown increasingly weaker throughout the session. The better-than-expected data is a win for the hawkish policy camp as it may allow the Fed to continue raising rates without any worries.

 

The jobs data did not do much for the stock markets, either. Stocks are solidly lower at mid-day and could be headed for a rough close to cap off the trading week. The selling being seen in equity markets today is nothing new. The market may simply be gearing up to resume its downtrend and weakness after a solid showing last week. Such is often the case in a bear market and the ride is likely to continue.

 

Although gold held the $1860 level for much of the session, it eventually succumbed to bearish pressure and slid even lower. Spot prices are now below the $1850 level in what could prove to be a key technical pivot. The $1850 area has been a battleground for weeks now, and prices sinking back below this area may encourage more sellers to sell or get short. A deteriorating technical picture for gold may not do the market any favors as the metal is seemingly already lacking any fresh bullish inputs. In the absence of new bullish influences, the market may remain vulnerable to additional selling pressure that could see it test the $1800 level in a short period of time. If the market does produce a close below that level, look out below. If the bulls are able to hold prices above it, however, it could be viewed as being constructive and a great long-term buying opportunity.

 

The bears are maintaining control of gold on the daily chart. That control had com3 under fire recently, however, as the bulls rallied prices back above the $1850 level. That upside negated a 2.5-month downtrend on the daily chart. Whether the trend lower continues or not, the bulls do have their work cut out for them. The bulls need to produce a close above the $1900 level to gain momentum. Additional buyers are unlikely to enter the market unless gold breaks out above this level and the lack of fresh buyers may severely limit any possible rallies in the meantime.

 

Rising yields, dollar strength and an aggressive Fed may all act as barriers to higher gold in the months ahead. Despite these factors, however, the bulls do have reasons to buy gold and may continue to do so. Given U.S. debt levels, the geopolitical scene and the potential for a recession, gold may be unlikely to decline much further.

Gold Higher as Choppy Trade Continues

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The gold market is seeing higher prices in early afternoon trade as choppy trade continues. The market has trade on both sides of the unchanged level today as investors ponder several key issues. The dollar and yields are both on the rise today, which is a negative for gold. Some bargain hunting and short covering are working in gold’s favor today, however, providing some balance to the market.

 

Investors continue to monitor and evaluate the war in Ukraine, inflation and the Federal Reserve. Some Fed officials today discussed the importance of getting interest rates to a neutral level as soon as possible. A 2.5% interest rate would neither support nor detract from the economy and the neutral rate may even help stop inflation. Given the fact that inflation is still at 40-year highs, the Fed has pledged to do whatever it takes to quell it, using all of the tools at its disposal. The Fed recently raised the Fed Funds rate by 50 rather than 25-basis points in a move likely to be repeated at the next two consecutive FOMC meetings.

 

However it does it, the central bank is likely to want to see rates at 2.5% or higher as quickly as possible. Although it has been discussed, a 75-point rate hike remains unlikely, however, as the Fed may have to tread carefully, not wanting to upset equity and risk asset markets. Avoiding negative feelings about higher rates may not be possible, however, and the stock market is already moving solidly lower despite last week’s six percent rise. The threat of higher rates and an increasingly aggressive Fed may keep equity investors ready to sell and volatility at a heightened level. As stocks sink further, assuming they do, it begs the question of whether much of that investment capital will find its way into gold. We believe it will and lower stocks may prove to be the key to sharply higher gold in the months ahead.

 

Although weaker equities may provide gold a boost, the metal will also have some issues working against it. An aggressive Fed and higher real interest rates are a primary obstacle to higher gold. The threat of a recession could give gold a boost or could send investors running into cash. Dollar strength could continue if the Fed follows through with its plans for higher rates. A stronger dollar may make gold less attractive for foreign buyers as it makes the metal relatively more expensive. Of course, should the Fed not follow through or even reverse course, the dollar could get crushed and resume its long-term downtrend. In this case, gold stands to benefit significantly and a sharp move lower in the currency could put gold back at all-time highs rapidly. The $1800 and $1900 levels remain the keys for the next move in gold. Whoever produces a close above or below these levels is likely to determine the near-term trend.

Gold Weaker As Yields and Dollar Rise

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The gold market is once again ewing some pressure today as rising bond yields and a stronger dollar take a toll. The gold bears have taken process below support at the $1850 area, making a challenge of the $1800 level a distinct possibility in the days ahead. Should the market break down below the $1800 area, it could set the stage for a fresh and significant leg lower in price that could see the market reach as low as $1700 before finding some solid buying interest. If the bulls are able to reverse the current trend, however, the market could see a sharp rise to $1900 or even beyond as shorts are forced to cover.

 

As traders and investors return from the long Memorial Day Holiday weekend, they appear ready to pick up where they left off last week. That means lower stocks, lower gold and rising yields. The trend of higher yields and dollar strength may continue to weigh on the yellow metal in the months ahead unless something changes. The Fed has suggested strongly that it will stay the course and keep taking rates higher to battle inflation. Should the Fed decide to “pause” or reverse course, it could potentially lead to a major reversal in yields and the dollar and could send gold skyrocketing higher. Even if the Fed does take rates sharply higher from current levels, real interest rates would still be very low and those rate hikes may not have a major impact on gold. The bottom line is this: Gold may stand to benefit regardless of what the Fed does or does not do in the months ahead.

 

As if inflation and the Fed were not enough for markets to worry about, Covid lockdowns in China have also played a large role. Those lockdowns may finally be easing, however, and if so, it could help loosen up global supply chains and inflation. The world’s second-largest economy posted some encouraging economic data recently. Its official Purchasing Managers Index saw a rise for May to 49.6. Although still under the key 50 level, the reading is a big improvement from the 47.4 reading registered in April. China could be a major influence on the global economy in the year ahead. Any other Covid-related issues such as lockdowns could have devastating effects on global growth.

 

U.S. President Biden will be speaking today with Fed Chairman Jerome Powell about the inflation problem. What those discussions may uncover is unknown, although it is possible that Biden may be looking for more assistance from the Fed and ideas on how to squash inflation sooner rather than later. Regardless of what the Fed or the government does, price pressures are likely to remain for some time to come. That, along with the current geopolitical scene and risk of recession may keep demand for gold robust in the months ahead.

 

Gold Higher As Dollar Drops

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The gold market is slightly higher in action on Friday as investors prepare for the long holiday weekend. A decline in the dollar, along with a slight decline in treasury yields, is giving investors reason to buy as the Memorial Day Holiday approaches. The threat of inflation, the war in Ukraine and other geopolitics may keep gold from falling any further. Stock market weakness may also provide gold with a degree of support. Despite stocks’ upside today, the equity markets remain in a downtrend that has been in place for several weeks now. Heightened volatility and significant sell-offs may be seen in the  months ahead.

 

The stock market could hold the keys to higher gold in the year ahead. For gold to fund a sustainable path higher to new all-time highs, it must outperform the stock market. The metal has done so, at times, throughout recent years, albeit never consistently or for very long. A real bull market for gold may occur when stocks are in a secular bear market. Although it may be too early to tell if stocks are now in a bear market, they are, without a doubt, coming very close. The next several months could see equities enter a secular bear market and if they do, gold could stand to benefit handsomely. The major question posed by such a scenario is whether the Fed decides to reverse course in the face of lower stocks.

 

A current bear market rally is likely already underway. This rally may keep stocks from falling much further in the months ahead and could allow the Fed to hike, as planned, in June and July. If the Fed should begin to question its policy path in the months ahead, however, it could set the stage for a massive rally in gold. Should the Fed decide to start easing policy once again, gold could see enough buying interest to take it well into fresh all-time high territory. For some analysts, it is not a question of “if” but rather “when.”

 

For the time being, the Fed appears intent on fighting inflation and staying the course to higher rates. The Fed recently raised rates by 50-basis points rather than 25 in a move that is anticipated to occur at the next two consecutive FOMC meetings. While unlikely, there has even been some talk of a 75-point rate hike by the Fed. Whatever the case may be, the Fed is likely to continue to take action and adopt a hard-line rhetoric concerning inflation. The question is: will it actually follow through from start to finish.

 

The gold bulls have put some significant distance between the market price and the $1800 level. The market has held support at the $1850 level for a few days now in what could be an encouraging sign for the bulls. The bulls will need to test $1900 in the days ahead, however, to maintain recent positive momentum. A failure to hold above the $1850 area could see the bears pounce and another test of the $1800 level could follow shortly thereafter.

Gold Down Again As Yields And Dollar Rise

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The gold market is struggling again on Wednesday as the bulls appear quick to bale on positions. A rebound today for both the dollar and treasury yields are likely the main issues affecting gold’s decline today. The selling in gold today comes as investors await the latest FOMC meeting minutes due for release this afternoon.

 

Today’s meeting minutes could provide markets with important clues about the Fed’s plans and outlook on inflation. Investors will pay close attention to the minutes for clues regarding the central bank’s plans for raising rates further, including the amount and pace of further rate hikes. The Fed has previously suggested that it will use all of the tools in its arsenal to get inflation under control. It further suggested that it would not stop until price pressures were brought under control. The Fed has seemingly made the choice between combating inflation and allowing equity markets to run higher. As the Fed battles inflation through rate hikes or other methods, stocks and risk assets could see ongoing volatility and selling.

 

The Fed is, despite recent action, well behind the inflation curve. The central bank would need to hike rates and hike them aggressively, now, to be able to get rates to neutral. Until the Fed takes such action, inflation is quite likely to remain out of control. The question for investors now may be whether the Fed has the guts to stick it out. Although the Fed has stated that it will raise rates as high as necessary and do what needs to be done to meet its objective, doubts remain. The Fed could become increasingly influenced by lower stock markets and politicians. The lower equity markets go, the more complaining the Fed is likely to hear. If the Fed were to reverse course or stop hiking interest rates, the results could be disastrous. The economy is already on its way into a period of stagflation, and a full-blown recession is a legitimate risk. One wrong move from the Fed could put the economy into a very bad place and the Fed is not known for always doing the right thing. This possibility may keep stock investors leaving while looking to put capital to work elsewhere.

 

The gold bears are still in control on the daily chart. The bulls have been ankle to hold the $1850 for a bit now, however, and that may be viewed as a positive. The bears will continue to look to produce a close below the $1800 level. The bulls are looking to maintain trade above $1850 and to produce a close above the $1900 level. Until they are able to do so, the bull camp is unlikely to get overly excited and the market may remain vulnerable to another round of selling. If the bulls are able to take prices higher, it could prove that the recent downside has been nothing more than a minor correction within a larger trend higher. In this case, the bulls may be able to challenge and overtake previous all-time highs rather quickly.

Gold Higher As Dollar And Yields Decline

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The gold market is seeing some buying today as the dollar and yields sink. The Dollar Index hit a fresh four-week low in the overnight session while yields for the benchmark 10-Year Note have fallen to 2.797%. The improving technical posture of the yellow metal is likely encouraging some buyers to step into the market. The more distance the bulls can put between current prices and support at $1850, the greater the likelihood the metal will test the $1900 level in the days ahead.

 

Stocks have opened the session lower, sharply lower in fact with the benchmark Dow Jones Industrial Average down by over 400 points in early action. U.S. equities are now in or very near bear market territory, defined as a decline of 20% or more from the highs. Inflation concerns, geopolitics and an increasingly aggressive Fed are all holding stock investors at bay and may keep the downside pressure on equities for months to come. As stocks falter further, much of the capital flowing out of equities could find its way into gold and other metals.

 

Stocks could indeed have some rough going ahead if the Fed sticks to its current plans. The central bank recently raised the key interest rate by 50-basis points. Such a hike is now expected at the next two consecutive meetings and a 75-point hike has not been completely ruled out. The Fed seemingly means business this time around and could very well stay the course to get inflation under control. As the Fed tightens policy, however, it could have a negative effect on stocks and risk assets. The Fed has to choose between higher stocks and lower inflation and has apparently chosen lower inflation.

 

There is no telling how low stocks could potentially go as the Fed raises rates. Some analysts have suggested a decline of 20 to 25% while others believe that equity markets may be cut in half. Either way, lower equities may be bullish for gold and much of that capital formerly invested in stocks could find its way into gold in the months ahead.

 

The gold market remains in no man’s land on the charts. The bulls will need to produce a close above resistance at the $1900 level for them to get excited. The bears are still looking to produce a close below support at $1800. Until one of these areas is broken, either up or down, the market may trade mostly sideways. The range bound price action could attract further buyers, however, as the failure of the bears to take prices sharply lower could be viewed as a bullish signal. Even if the bulls do accumulate here, however, they will need to take prices higher at some point and sustain those gains to keep buyers interested. The next few sessions may be very telling about the market’s intentions as prices are now within striking distance of the $1900 level.

Gold Building Momentum

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The gold market is seeing some upside today as the bulls look to distance the market from the $1800 level. The metal is moving higher today as risk appetite remains poor and as the dollar hits a four-week low. Crude oil prices may also be a contributing factor today as the price of oil rises while yields are fetching 2.815%. The bears may tire out rapidly at this rate and a short covering rally could be seen. Such a rally could easily take the price of gold beyond resistance at $1850 and could even drive the market to test resistance around the $1900 level.

 

Stocks have been against the ropes in recent weeks, although that may be difficult to see today. In early morning action, the benchmark Dow Jones Industrial Average is higher by over 500 points. Although today’s rally in equities may look impressive, it could prove to be nothing more than a relief rally in a larger downtrend. Stocks have been trending lower for some time now, and recently hit a 12-month low on the charts. With so many major issues weighing down risk appetite, including inflation, an aggressive Fed and the war in Ukraine, it is difficult to imagine a scenario in which the trend in stocks reverses course. Any downside pressure on equity markets may keep capital flowing into gold and precious metals, and the yellow metal may not see much more downside if inflows are robust.

 

Whether gold can sustain its upside today is another question. The metal has been hit hard in recent weeks by a stronger dollar, aggressive Fed and other factors that may make it less appealing to investors. The rising dollar has been a major factor for gold’s lack of upside, and as long as the currency is rising it is challenging to see a situation in which gold does the same. The dollar may finally be running out of gas, however, as numerous challenges remain for the currency regardless of how high the Fed may raise interest rates. Should the currency begin to trend lower and reverse course, it could set the stage for a significant rally in gold that could see the market retake key overhead resistance or beyond.

 

The bears are still in control on the daily chart. That control has been eroded a bit today, however, and if the bulls are able to muster further gains throughout the week, the trend may even be negated. The bulls need to first produce a close above $1850 and then take the $1900 level on a closing basis. The bears will target a close below $1800 and then the May lows at the $1785 level. Should these levels be taken above or below, it could set the trend for the metal for months to come. If the market is able to move higher this week and sustain those gains, it could again point to the bulls willingness to buy any significant dips and the technical edge may then belong to the bulls.

Gold Lower As Fresh Inputs Awaited

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The gold market is a bit lower in early action Friday as traders digest recent upside and risk aversion remains robust. Stocks are not far from the unchanged level and remain close to 12-month lows. Appetite for risk, even on a good day, remains tepid at best as the recession trade is now working its way through global markets. The gold market may require some fresh influences at this point to develop a trend and for the time being prices remain in no man’s land.

 

Taking an opposite approach to the U.S. Federal Reserve, China overnight cut a key lending rate to boost its declining real estate market. The prime five-year loan rate was cut by a greater than expected .15% in an effort to support growth. The move did provide a little bit of support for stock markets although it could send some mixed signals around the globe about central bank intentions. It may not make much sense, for example, fr the world’s second-largest economy to be cutting rates and easing while the largest economy is attempting to tighten rates aggressively.

 

The Fed has sent a pretty clear message that it will continue to raise interest rates to combat inflation. After hiking the Fed Funds rate by 50-basis points at its last meeting, the Fed is expected to raise rates by 50-points at its next couple consecutive meetings. There has even been some discussion of a 75-point rate hike, although it seems the odds of such a move are extremely low at this point. As the Fed raises rates to slow the economy, they risk the economy slowing too much and even turning it into a recession.

 

Worries over recession have been present for some time now. As the Fed holds course and continues with its aggressive policy tightening, those fears may escalate further. Stocks have already begun to feel the bite of recession concern, and the market could move quite a bit lower from current levels if the economy does enter a recession. These concerns are likely to last for some time-at least until the Fed is done hiking-and could fuel additional volatility in the months ahead. That volatility may provide gold with a degree of support as investors desiring to bail on stocks seek out alternatives.

 

The gold bulls have done a good job, thus far, of absorbing any significant declines in the market. The $1800 level has held so far and may not be breached at all to the downside. The bulls need some help now, however, to get prices moving on a sustainable trajectory higher. Such help could come in the form of the Fed taking a less hawkish approach, new developments in the war in Ukraine or a reversal in the dollar. Whatever the case may be, the bulls will need some fresh inputs to take prices higher and keep them higher at this point.