The gold market recently completed its best daily gain in some time as the dollar lost ground and as yields slumped a bit as well. Also working to the metal’s advantage today is weakness in equity markets. Stock markets have been in a downtrend now for weeks, but the worst may be yet to come. There is an increasing amount of concern now over corporate earnings which had, for some time, buoyed equities. Dismal results this past week from Target and Walmart could be indicative of more tough calls to come. As Covid lockdowns continue in China and as the war in Ukraine rages on, there may be little left to offer some respite from selling pressure in equities.

 

Stocks are now near 12-month lows and could potentially be headed even lower. Both Target and Walmart blamed their poor results on inflation this past week, and if that is the case, there may be plenty of additional disappointments ahead. The term “recession” is being tossed around quite a bit today as investors become increasingly concerned over the possibility of a full-blown U.S. recession. Time will tell, but the chances of a recession definitely seem to be on the rise. Not only could corporate earnings take a hit due to inflation and other factors, but the Fed will, at the same time, be looking to hike rates aggressively to combat price pressures. The combination of higher interest rates and inflation could slow the economy to a standstill and could put growth into negative territory.

 

Outside markets are helping gold today as crude oil rises to trade around $110 per barrel. The Dollar Index hit a two-week low today while yields for the ten-year are near 2.84%. Yields have come off in recent days after trading firmly above the 3% level although it is unclear if any further declines may be seen.

 

Today’s rally in gold put some distance between the market price and key support at $1800. Now trading around $1840, the bulls have prior support at $1850 within their sights and could look to challenge this key area in the days ahead. If the bulls are able to produce a close above this level, they may then target the $1900 area as the next jump. The bears will not go easily, however, and will still look to produce a close below key support at $1800. If the bears fail and $1850 is overtaken to the upside, a short covering-rally could ensue that may assist the bulls in taking price back to $1900 or beyond. For the time being, the bears remain in control on the daily chart.

 

The gold market could remain mostly sideways for the next few months as markets await more action from the Fed. Now expected to raise rates by 50-basis points at its next two meetings, the central bank could surprise markets with any additional action or a lack thereof. After fighting to maintain its credibility, however, it seems as if the Fed will in fact follow through on its pledge to fight inflation and use any and all tools at its disposal to do so.

As the financial world takes a more serious tone and as volatility continues to spike, an increasing number of investors may be looking to alternative places to put cash to work. While many of the usual names come to mind quickly such as gold, Bitcoin, and other cryptos, there may be an even safer place to put capital to work. Real interest rates, if they continue to rise, could become an increasingly important source of competition for gold and cryptos.

 

The gold market has recently found support at the $1800 level and the bears have, thus far, been unable to breach this key level on a closing basis. While this level may hold, for now anyway, it could come under increased attack in the months ahead as the Fed looks to raise interest rates aggressively. Although there have been some signs of a peak in inflation, the core rate of inflation is very likely to remain elevated through the course of the year. This elevated inflation could create a challenging environment for both the economy and markets and leave investors searching for asset classes that may protect their purchasing power.

 

Although the entire curve is not in positive territory, real yields could see a decent climb as the Fed looks to potentially raise rates to the 3% level in the months ahead. As nominal rates rise, real yields will also rise. As real yields climb, investors looking for perceived safe-haven assets could simply put money into a bond that would provide a good risk/reward scenario. The last few years have seen gold benefit due to negative real interest rates. As rates climb out of the gutter, however, they may pose a powerful threat to gold, Bitcoin, and other assets typically bought as safe-havens.

 

Of course, the Fed could change its mind or even reverse course completely. After saying for some time that inflation was only transitory, however, the Fed changing course is very unlikely. The central bank may, this time around, actually stick to what it has been saying for months now. If the Fed looks to get inflation under control, it will need to raise rates aggressively and the 3% level may not even be high enough. The Fed’s last meeting saw it hike rates by 50-basis points. That same move is likely to be seen at the next two or three consecutive meetings as the Fed looks to show it means business.

 

The primary competitor for gold has been cryptocurrencies. These assets have been hammered as of late, however, and do not seemingly pose much, if any, threat to gold in the current environment.

 

The gold market remains stuck between two key levels-$1800 and $1900. Whichever level breaks first, on a closing basis, may determine the way gold moves for the months ahead. The longer the market stays sideways between these levels, the greater the eventual breakout or breakdown may be.

The past week has been one to forget for the gold bulls. The decline of some 4% this week markets the worst weekly close since June of last year. Gold prices have shed about $70 per ounce on the week, and more selling could be in store if the bulls do not stop the bleeding soon. Not only is the yellow metal being sold due to dollar strength and an increasingly aggressive Fed, but it also has to contend with recent technical damage inflicted that has taken the metal far below recent key support around the $1850 area. The technical breakdown may keep the bears encouraged and could lead to further selling before it has run its course.

 

The gold market may have also been victim to margin selling this week as equities were hammered. Gold is now in a consolidation stage and could test support at $1790 in the days ahead. A breakdown of $1790 could invite even more selling that could see the market decline towards the $1700 level. Traders may want to widen their volatility expectations, however, as markets across the board are likely to see continuing volatility due to the war in Ukraine, Chinese Covid lockdowns and other factors.

 

The days ahead may likely be primarily sideways for gold as it consolidates and possibly looks to recover. Any significant recovery, however, will need gold to retake the $1850 area on a closing basis. Given the market’s currently oversold status, gold could potentially see a rapid bounce higher, possibly even testing $1900 before petering out. Aggressive shorts may look to sell at a retest of $1900 and a significant battle between bulls and bears could be seen in that price area. For the time being, however, the bulls must work overtime to get the market stabilized.

 

Another factor in gold’s recent declines is the dollar. The currency has been stronger and recently hit a 20-year high. The dollar slipped a bit Friday but was still set to finish its sixth week of gains this week as worries over a slowdown persist. Higher interest rates and an aggressive Fed have stoked fears of a policy error that could not only put the U.S. into recession but could do so as inflation runs even hotter than recent weeks. Inflation data this week showed some signs inflation may be beginning to ebb, but any slowdown in price pressures is likely to be very slow. Concerns over inflation were likely to main factor behind the University of Michigan’s consumer sentiment survey falling to the lowest level since 2011. Worries over inflation, China lockdowns and Europe may keep inflows into the dollar going as investors seek out its perceived safety.

 

The necessary tightrope walking by the Fed will continue for months to come. As the central bank attempts to cool inflation while avoiding a recession, market volatility may see a further rise. This volatility may benefit gold in the end as investors seek out alternative asset classes.

 

The gold market is seeing a respite from the recent selling today as key outside markets give the bulls reason to buy. The metal may also be seeing some benefit today from another red-hot inflation report that could keep it supported over the long-term. The yellow metal remains vulnerable to changes in inflation, Covid lockdowns and the war in Ukraine. For the time being, however, the bulls are trying to retake key support at the $1850 level and if they produce a close above this key target they could gain further momentum for a run towards the $1900 area.

 

In what is likely the most important data report of the week, the Consumer Price Index for April saw a rise of 8.3% year-over-year. Although it is a tad lower than the March gain of 8.5%, the report still suggests that inflation is a major problem. The report falls into the camp of the policy hawks who want to see aggressive interest rate hikes from the Federal Reserve to get inflation under control. Rising price pressures are typically bullish for hard assets like gold and bearish for paper assets like stocks. Time will tell if that proves to be the case this time around, but either way much work remains to be done to get price pressures under a degree of control.

 

Outside market action today sees stronger crude oil trading near $105 per barrel. The Dollar Index is weaker today after hitting recent multi-decade highs. Yields on the Ten Year Note are fetching around 3% today. The ongoing war in Ukraine is still showing no signs of letting up. Both sides seemingly believe they can make progress on the battlefield, and that has led to little to no negotiating off of it. Until there are clear signs of progress being made towards a peaceful end to the conflict, investors may steer clear of stocks and risk assets and lean more towards perceived safe havens such as gold. Although equities are sharply higher today, that could be nothing more than a relief rally as equity markets have been trending lower for some weeks now. Today’s stock market rally could, in fact, be sold into heavily in the days ahead.

 

The gold and other markets will also continue to await further action from the Fed. The central bank has said it intends to use all of the necessary tools to combat inflation. The battle could have a significant and negative impact on stocks, however, and the Fed could come under pressure to slow the pace of hikes if stocks and risk assets come under even more pressure. For the time being, the technical traders and momentum players may dictate market action to a large degree, however, as the market remains in no man’s land on the charts.

 

The bulls will target a close above $1900 while the bears will look to take out key support at the $1800 level.

Spot gold prices are firmer in mid-morning action today as the latest jobs data did not disappoint. The non-farm payrolls data for April showed a rise of 428,000 jobs while the unemployment rate stood steady at 3.6%. This figure beat expectations for a rise of 400,000 and came just short of the March figure which was a rise of 431,000 jobs. Stocks are solidly lower today, with the benchmark Dow Jones Industrial Average down by over 250 points as of this writing.

 

Equity and risk asset weakness may be the key to higher gold prices. The stock market bears are showing their teeth again today following yesterday’s shellacking. There are now downtrends on the daily charts pointing to lower equities as the path of least resistance. The downtrend on the daily charts may support further selling as well as technical traders and momentum players look to ride any waves lower. As capital flows out of equity markets, much of it could potentially find its way into the precious metals space and into gold specifically.

 

Other outside markets are also giving gold a boost today. Crude oil is moving higher today, trading near $110.50 per barrel. The dollar, which has clearly been a major obstacle to higher gold, has come off of its 20-year high and is solidly lower today. Treasury yields remain elevated, however, as the 10-Year Note is currently fetching over 3.07%.

 

As the markets try to make sense of the Fed’s plans in the days and weeks ahead, more volatility may be seen. With downside pressure already building in equities and other risk assets, it may not even take much for them to really cave in and decline heavily. A major equity blowout, for example, has the potential to fuel significant buying in gold and other metals. This buying could take gold out of its recent trading range and could force a reckoning at overhead resistance levels. The bulls first have their sights set on retaking the $1900 level. From there, they will look to produce a close above key resistance at the $1950 area. Should this unfold, the metal could rapidly overtake the $2000 level or beyond and possibly test all-time highs.

 

The bears are looking to produce a close below key support at the $1850 level. If successful, the market could find itself very vulnerable to a substantial decline that could see prices test the mid-1700s before finding support. In that case, even the most determined bulls could throw in the towel, leading to a significant sell-off that could find itself exhausted quickly.

 

In the meantime, the yellow metal is likely to take its cues from both interest rate expectations as well as geopolitics. The ongoing war in Ukraine will be watched closely and could keep some sort of floor under the gold market as long as it rages on. The market is still in no man’s land, however, until key areas are breached either up or down.