Tick Tock Tick Tock

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The markets are sitting tight and awaiting the latest FOMC meeting conclusion and announcement. It is widely expected that the Fed will raise rates by 50-basis points today rather than 25. Some have even suggested the central bank could elect to raise rates by 75-basis points today. Arguments can be made for all levels of a hike. The recent GDP data miss could give the Fed reason to rethink its aggressive stance and could possibly lead to just a 25-point hike. Any variance from a 50-point hike could see some fireworks, however, as investors are forced to rethink their strategies. That being said, given recent trends in the market and gold’s lack of upside on weaker than expected data, the path of least resistance for the metal may be lower.

 

Markets are calm ahead of this afternoon’s announcement and presser by Fed Chair Jerome Powell. The biggest issue of the decision this afternoon is not how much the Fed will raise rates today, but how aggressive it plans on getting in the months ahead. Inflation is clearly a major problem. The war in Ukraine will only make price pressures even worse and the Covid lockdowns in China may stress already-strained supply chains to the maximum. The Fed’s commentary today could be critical for putting markets at ease and setting the path of expectations going forward. On the other hand, a lack of clarity by the Fed today could put markets into a tizzie as interest rate expectations become unanchored and as the unknowns surrounding monetary policy increase.

 

Worries over inflation could increase substantially if the Fed does not take an aggressive course of action. Stocks and risk assets, however, could potentially tank if the Fed raises rates quickly and aggressively. The central bank has seemingly backed itself into a corner, however, and will be forced to choose between allowing inflation to get even more out of control or the potential for a bear market in stocks and risk assets. The Fed has recently made it clear that it intends to fight inflation regardless of the consequences. The Fed has been known, however, to change its mind rapidly and pressure from politicians and others once equities really begin to break could prove to be too much for the central bank which could then adjust its thinking. Going only part of the way would likely cause even more harm, however, as inflation would still be problematic while stocks could be lower. This is arguably the worst case scenario the Fed could put itself into at this point.

 

For the time being, the bears remain in control on the daily chart and the path of least resistance may be lower. The bears will look to produce a close below key support at the $1850 level. The bulls will target a close above resistance first at $1900 and then at $1950. A breach of these levels above or below could set the trend for weeks to come and may determine gold’s direction for the foreseeable

Will The Ground Shake Tomorrow?

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Wednesday afternoon could see some fireworks this week as the FOMC meeting concludes. It is now widely expected that the Fed will raise interest rates again, but will hike rates by 50 rather than 25-basis points as it did in the previous meeting. This could only be the first of several meetings, in fact, where the central bank hikes by 50-basis points or even more. The Fed has seemingly acknowledged the real threat of inflation at this point after suggesting previously that price pressures were transitory and would abate on their own within time. After getting behind the eight ball quickly, the Fed may now be forced to attempt to catch up with aggressive policy measures. Although such a move may be necessary, it will not come without some pain. Stocks and risk assets could be hit hard by an aggressively-hiking Fed, and as capital ploys out of these assets it could be looking for a place to hide. Gold could stand to benefit because of this, and benefit handsomely.

 

Gold hit the $1850 support level in the overnight session today and has since staged a bit of a bounce back higher to current levels around $1872. Now that gold has touched this level, the question is whether it will be able to sustain a bounce higher again or if it will falter and retest this level on the downside. Given the anxiety over the FOMC meeting this week, a rapid run down to $1850 or even $1820 cannot be ruled out. Shorts may hit the sell button in a panic tomorrow based on the Fed’s actions or commentary and a knee-jerk reaction lower is very plausible. Conversely, a rapid move higher could also be seen depending on reaction to the Fed and could take prices back to the $1900 level or higher.

 

Expectations are wide for the Fed to hike by 50-basis points tomorrow and at its next couple of consecutive meetings. Even though rates may be going higher, however, the Fed could be unlikely to have a dramatic impact on the gold market. Real interest rates, after all, will remain negative. If stocks and risk assets sink further on an aggressive Fed, investors may have little place to go outside of gold to put capital to work in. Despite recent downside, the gold market has held some key support thus far as the bulls are willing to step in and buy. If that trend continues, it may simply be only a matter of time before the yellow metal stages an upside breakout that could see it challenge previous all-time highs.

 

The bears remain in control of the metal on the daily chart. The bears will look to take the market lower and produce a close below support at the $1850 level. The bulls will look to retake the $1900 level and then the $1950 level. A close above or below these levels could suggest a continuation and prices may keep going in that direction until exhausted.

Risk Aversion Driving Gains In Gold

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The gold bulls are fighting their way back today as stocks get hammered once again. The Dow Jones Industrial Average is down over 500 points at mid-day and could make fresh lows as the afternoon gets rolling. Numerous issues are driving risk aversion today, with the ongoing war in Ukraine being front and center. The war is seemingly taking a dangerous turn for the worse as Western nations amp up their supply of arms to Ukraine and as Russian President Putin takes his anti-west rhetoric a notch higher. Hanging in the balance is the energy supply for Europe. Russia now appears ready to squeeze European nations’ natural gas and energy supplies in what could lead to a massive recession in the region.

 

Much of the market’s attention remains on China following its recent lockdowns of various major cities. Chinese officials today, however, have reiterated their intent to keep markets stable and vowed to introduce further stimulus measures meant to do so. China has been the center of much negative attention in recent weeks as the country closed some cities, including Beijing and Shanghai, and forced mandatory Covid testing on some residents. The lockdowns could put a dramatic damper on Chinese economic output. As the globe’s second-largest economy, the effects may be felt across the world and could even put the global economy into a contraction. Not to mention, the lockdowns will also put further strain in already-strained markets and supply chains, fueling even more inflation in the process.

 

Non-dollar currencies are catching a break today as Chinese officials looked to calm investors. That improved sentiment towards those currencies has the dollar declining, although whether the day’s declines are sustainable is another question entirely. The stronger dollar has likely been a major roadblock for higher gold, and should the currency continue to trend higher, the gold bulls may have a challenging time taking the metal above resistance. The bulls are seeing a degree of victory today, however, as the metal has firmly retaken the $1900 level. The $1950 area could be next if bullish momentum is sustained and that resistance level could provide the bulls with a good test.

 

The bears will initially look for a decline to produce a close below the $1900 level. The real test for the bears, however, may be at the $1850 region. A close below this level could set the stage for a fresh leg lower in price that may have many of the bulls throwing in the towel. This could lead to an avalanche of selling that could take significant time and effort to undo.

 

The bulls have thus far done a good job of buying any dips. There may not be any reason to believe that this will not remain the case in the months ahead, even if the Fed hikes rates aggressively. The gold bulls’ metal will likely be tested in May, however, as the Fed is likely to hike rates by 50 rather than 25-basis points.

Gold Flat As Gains Prove Fleeting

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The gold market is just below the unchanged line in late morning action Thursday. The slight decline seen in gold is a far cry from the gains seen earlier in the session. Gold had popped higher upon the release of the latest GDP data which showed a contraction for Q1. GDP data showed a decline of 1.4%, far below analyst expectations for a rise of 1%. The news fueled some buying in gold, which quickly ascended to the mid $1890s before faltering. Economists were looking for a slowdown compared to Q4 of last year, and today’s reading reiterated the fact that Covid continues to play a major role in economic activity.

 

The slower growth story could continue as the year progresses. The Fed will still actively fight inflation through several interest rate increases. Those rate hikes will, however, likely weigh heavily on the economy and fuel a further slowdown that could even turn into recession. There are many unknowns, in fact, surrounding the increasingly aggressive Fed and what it may do in the year ahead. What appears clear at this point, however, is that the central bank is intent on getting price pressures under control and will do whatever it deems necessary to do so.

 

Not only will tightening monetary policies slow down economic activity, but the viral pandemic could also continue to play a major role. Lockdowns across major Chinese cities are already being felt globally, and if they remain closed for an extended period of time, some real damage to the globe’s second-largest economy is likely to occur. If the virus is to see a rapid and wild spread again, the effects could be devastating for the global economy. Such a scenario would put even more pressure onto already-strained supply chains and already-high inflation could explode even higher.

 

Inflation remains a major negative for global markets and economies. The hottest price pressures in some 40 years are taking a bite out of consumer spending, and that bite may increase should prices rise further. Due to the threat posed by inflation, the Fed and other global central banks may act more aggressively than previously anticipated and could hike rates at a faster pace. The U.S. Fed is already likely to raise interest rates by 50-basis points at its next two meetings after hiking by 25-basis points last month.

 

Even with several rate hikes for the year or some larger rate hikes, interest rates are still likely to end 2022 under the 3% level. Real rates are likely to remain negative, and until they move into positive territory the gold bulls may be undeterred.

 

The bears are still in control of the daily chart, although not by much. The bulls will look for a climb to take prices above resistance at the $1950 and $2000 levels. The bears are shooting for a decline to produce a close below support in the $1850 region.

The Slump Continues

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The gold market is moderately lower today as the bearish slump continues for the metal. Down nearly $18 per ounce at lunchtime Wednesday, the gold market remains below the key $1900 support level. Rising government bond yields and a surging dollar are both taking a bite out of sentiment today. Eroding technicals are also making it easier to sell gold today as the metal has yet to climb back above previous support levels. The lack of a bullish bounce could indicate more selling may be on the way in the days ahead, possibly even seeing the market decline all the way towards the next key support area at $1850.

 

The Dollar Index hit a fresh two-year high today. The strengthening dollar may become an increasingly key factor for the gold market as it makes gold relatively more expensive for foreign buyers. The higher dollar, combined with an increasingly aggressive Federal Reserve, could keep the gold bulls in check. A reversal in the dollar, on the other hand, could set the gold market on fire and could encourage buyers to take prices sharply higher from current levels. As the dollar hit a two-year high today, the euro hit a 5-year low. Unlike the greenback, the shared European currency is not seeing a flight to safety bid. Europe still gets much of its energy, in fact, from Russia and that has made costs skyrocket in the region. Russia cut off Bulgaria and Poland from its natural gas supplies yesterday. Any similar move directed at Europe could put the region into emergency mode as it struggles to replace all of that lost energy.

 

Stocks are higher today and seeing a nice bounce following Tuesday’s major declines. Any appetite for risk is likely to remain very limited, however, as the war in Ukraine rages on. This week is the busiest for the quarter in terms of earnings reports, and thus far those reports have been mostly upbeat. Despite upbeat earnings reports, the stock market may remain sideways to lower as risk aversion due to the geopolitical situation continues to be a major influence.

 

The bears have now gained some momentum and have a slight advantage on the daily chart. The bulls need to produce a close above resistance at $1950 and then $2000. If unable to do so, the bears may look to take the market lower and produce a close below support at the $1850 area. The gold market could remain mostly sideways until these levels are breached above or below. Risk aversion and the possibility of an increasingly aggressive Fed may be key issues for investors to focus on, along with the stronger dollar and rising yields. These issues may keep the gold market vulnerable to headline news and fresh developments. Shorts may want to be careful because of this risk and longs may continue to absorb any significant declines in the market until proven otherwise.

Bulls Have Some Work To Do

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Bulls Have Some Work To Do

 

The gold bulls have their work cut out for them. The yellow metal is modestly higher today as it sees a corrective bounce from recent weakness. Spot gold is trying to recapture the $1900 level today as it sank to a nine-week low yesterday. Some bargain hunters have stepped in today and some shorts appear to be covering as well. More work remains, however, for the bulls to negate the recent downturn that has been exhibited within the market and to undo some of the negative sentiment seen in recent action.

 

The markets are also considering the ongoing Chinese lockdowns and how they could affect the world’s second-largest economy. As China locks down more of its major cities, worries are increasing that it could lead to a severe supply disruption for already-strained global markets and economies. China’s economy could, in fact, suffer greatly this year due to the lockdowns and it remains unclear how long such measures may be necessary. As if the Chinese lockdowns were not enough for markets to worry about, the ongoing war in Ukraine is also fueling some risk aversion today. The war has, thus far, shown no signs of slowing down.

 

Crude oil is a bit higher today and firmly over the $100 per barrel level. Stronger crude may be bullish for metals as it also feeds into the inflation narrative. The dollar is also stronger today, however, and may be viewed as being bearish for gold and metals. The dollar hit another two-year high today and could be poised for further gains in the weeks ahead. Yields are steady today, with the 10-year fetching a yield of 2.75%. Outside markets may have diminishing effects on the gold market as investors keep their eyes on the larger picture.

 

The bigger picture could include much higher interest rates. The Fed has already raised rates once by 25-basis points. Next month, the FOMC meeting could result in a 50 or even 75-basis point hike. The next few meetings could see such hikes that have the potential to produce more of a shock and awe effect than the standard 25-point hike. The Fed may find itself going from not acting soon enough or enough overall to overacting and putting the economy into recession. Although a few rate hikes may not necessarily tip the economy into a recession, the wrong message sent by the Fed or overly aggressive action could.

 

The bears are in control of gold on the daily chart and a downtrend is now in place. The bulls and bears are now on a fairly level playing field, with neither really having an advantage from a technical standpoint. The bulls will look to initially target the $1950 level and then $2000. The bears will look to produce a close below support in the $1850 area. Whichever levels give way first could signal the upcoming market trend. A lack of downside follow-through at current levels could also be considered bullish as the bulls absorb the bargain and look to get long.

Gold Pounded As Covid Fears Stoke Selling

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The gold market is sharply lower at lunchtime Monday as fears over Covid take hold. Both gold and silver are lower today, hitting two-month lows in the process. The selling was not limited to precious metals, today, and the entire raw commodity sector was hit hard over demand worries as Covid again spreads through China. The world’s second-largest economy is enforcing lockdowns in numerous areas including Shanghai and requiring testing of its people. With lockdowns having now spread to Beijing, there are increasing concerns they will have a very negative impact on global demand. The issues in China are expected to drive already-high inflation even higher and to put further strain on already-strained supply chains globally.

 

Worries over the Covid situation in China led to Chinese stocks being hammered yesterday for their worst decline in two years. The Chinese currency, the yuan, declined to its lowest level against the dollar since late 2020. The carnage may not yet be over, either, as the virus could easily continue to spread in China, possibly forcing even more closures.

 

The situation in China is a major factor for markets currently along with the ongoing war in Ukraine. The war still shows no signs of de-escalating. Traders today, however, appear to be more focused on China and Covid than the war. The threat of major supply chain glitches and lowered overall demand is fueling a sell-off in gold and other metals today. Despite stocks being sharply lower today as well, metals are not seeing any significant safe haven buying on Monday.

 

The lock of buying today and the storing selling pressure have broken the gold market on some levels. Spot prices have broken two support levels on the downside, $1950 and then $1900. The breakdown of prices could attract further sellers in the days ahead and gold could potentially have a long week. The market, while below $1900, is not far below and the bulls could attempt to recover some ground quickly. A rapid rise back above $1900 could attract further buying as bargain hunters look to get long.

 

The sell-off today has erased the bulls’ advantage on the daily chart. The next several sessions may provide clues about the market’s intentions going forward. The bulls will look to retake the $1900 level and then the $1950 level. The bears will look to produce a close below support at the $1850 area. Until these areas are breached, either above or below, the market could spend some time moving sideways. Of course, given the current geopolitical and economic scenarios, the smart money may be more apt to buy and get long than to sell and get short.

The next FOMC meeting is just a few weeks away. That meeting could provide serious clues about the central bank’s intentions going forward. The Fed may hike rates by 50-basis points in May rather than 25 and could do so in the next couple of meetings to try to get inflation under control.

Is A Hawkish Fed Taking A Bite Out Of Gold?

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Inflation has been the talk of the town for months now. After previously suggesting that price pressures were transitory in nature and likely to pass, the Federal Reserve now acknowledges the inflation problem and appears ready to act to put a halt to price pressures. The Fed has already raised the Fed Funds rate by 25-basis points and now seems ready to pull the trigger on consecutive 50-basis point increases at its next two meetings. The Fed may be looking for a “shock and awe” type of response to aggressive rate hikes, and further hikes down the road are still likely.

 

The Fed’s increasingly hawkish rhetoric may now be having a negative impact on the gold market. The metal may also be affected today by a stronger dollar, lower crude oil and rising bond yields. Thursday’s World Bank and IMF meeting was also likely viewed as being bearish for gold as some hawkish Fed commentary provided markets with a stark reminder of how hawkish the Fed has become. The question then becomes whether gold can ascend higher in spite of higher interest rates.

 

Despite gold’s decline today, the metal is unlikely to be largely affected by rising interest rates or an increasingly aggressive Fed. Even if the Fed does hike rates by 50-basis points at its next three meetings, interest rates would still be less than 2%. This type of rate is unlikely to deter gold buyers who are buying gold to protect purchasing power and as a hedge against dollar weakness. Not only will inflation continue to drive buying in gold, but the ongoing war in Ukraine may also be a positive influence on the gold market. That being said, however, there may be more days when the price of gold is weaker due to worries over the Fed and higher rates. Any significant declines are still likely to be bought, however, until proven otherwise.

 

The U.S. Federal Reserve is not the only central bank looking to correct its policy. It is widely expected that the ECB will also be raising rates due to inflation in the months ahead. The ECB will likely raise rates by 25-basis points in both July and September. While likely not as aggressive as the U.S. Central Bank, the European Central Bank will also be looking to send a message that it intends to get inflation under control. Whether central banks can accomplish exactly that remains to be seen, but they appear intent on using all of their tools to do so.

 

The bulls are still in control on the daily chart but have faded this week. The market remains between key support and key resistance. $2000 is the target for the bulls while $1900 remains the target for the bears. A close above or below these levels could set the stage for further advancement in that direction. The longer the market spends in between these areas, the more significant the eventual breakdown or breakout may be. The smart money is likely to continue buying any dips in gold until proven wrong, making a challenge of previous all-time highs a distinct possibility in the months ahead.

Gold Lower As Stocks Rally

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Gold is lower today as the stock markets move higher. The Dow Jones Industrial Average is up nearly 200 points in early action Thursday as investors shake off some risk aversion and appear hungry to buy. Whether today’s rally is sustainable is another question entirely, however, as ongoing worries over the war in Ukraine and inflation take a bite out of sentiment. Stock charts are improving this week and that improved technical posture may weigh on gold as investors shy away from perceived safe haven assets. The party may not last long, however, as the war could take a bloodier turn in the days ahead and as inflation continues to run rampant.

 

The World Bank and IMF continue to hold meetings in Washington D.C. today. The central bankers are expected to sound increasingly hawkish regarding their monetary policies as the world grapples with price pressures. The globe could, in fact, be at the early stages of a massive tightening period that could see rates rise substantially. On the other hand, the central banks may also recognize the dangers posed by rising rates and may elect to take it easy on policy. The Fed and other central banks will be forced to choose. They will have to make a decision of whether to fight inflation aggressively at the risk of upsetting stock markets or letting inflation run higher while keeping the investing public appeased. Either way, markets could have a tough time ahead and volatility may be heightened for an extended period of time.

 

Possibly giving gold a boost today, the crude oil market is firmer while the dollar is weaker. Higher crude oil prices may bolster the inflation narrative and lead to buying of assets such as gold that may preserve purchasing power. The dollar weakness is also a gold positive as it makes the metal relatively less expensive for foreign buyers. Recent dollar strength has likely been a major factor in gold’s lack of upside follow through. How much the currency may have left in the tank is the subject of debate, however, as massive deficits and other issues may keep the dollar from rising much further. At the end of the day, the gold market may not need much help from outside markets as it will likely move due to risk aversion and safe haven buying.

 

Of note today is gold’s decline below the $1950 level. If prices close today below this support level, the bears could have something to work with and could look to extend the decline towards the $1900 area. A close below $1900 would almost certainly attract more selling interest and might fuel a decline to $1850. The bulls still need to produce a close above resistance at the $2000 level to build momentum.

 

Steady Stocks Keep Bulls At Bay

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The gold market is off to a quiet start Wednesday. Spot gold is $2.50 per ounce at $1952.60 in early going as investors take a wait and see approach to the trading day. Gold has come back after being down several dollars per ounce earlier in the day in what may be an encouraging sign for the bulls. Stocks are mixed today, with the Dow Jones Industrial Average higher by over 200 points while the tech-heavy Nasdaq is seeing a decline of over 136 points. Stocks remain in a downtrend, recent days have seen them stabilize, however. Equity markets have been able to largely shrug off the ongoing war in Ukraine and the Chinese lockdowns and focus on corporate earnings.

 

Outside market action is bullish for gold today. Benchmark 10-Year Note yields are fetching 2.57%, a level much lower than earlier in the week when yields approached the 3% mark. Crude oil prices are firmer today with oil trading around $104 per barrel. After hitting a two-year high yesterday, the Dollar Index is solidly lower today in another break for the gold bulls. Despite these potentially bullish influences, the gold market is doing little to nothing in early action today.

 

Gold has fallen back into its trading channel and is ignoring economic data for the most part. Existing home sales fell last month and despite this negative economic data piece gold has shown little to no reaction. The market may be trading more on technicals right now after a failure at the key $2000 level. Dollar strength has also likely played a role in gold’s recent lack of upside, although the currency could be quickly approaching a major turning point.

 

Viewed by many as the lesser of evils. The dollar has been bid up recently as aggressive Fed rhetoric and the war in Ukraine drive safe haven demand. The dollar hit as high as 101 yesterday and may not have much room left to the upside. Massive deficits and a steepening yield curve may keep the dollar at bay. Should the currency reverse course and begin to head lower again, gold could see a significant and rapid breakout to previous all-time highs or beyond.

 

The Fed is likely to raise its key interest rate by 50-basis points next month and some are now even considering a 75-point hike. A 50-point hike would be the first such hike since the implosion of the dot.com bubble and could signify the Fed’s willingness to fight inflation regardless of the consequences. A 75-point hike could send a sense of shock and awe through the markets that may also send the same message.

 

The bulls remain in control on the daily chart. The next upside target is to produce a close above resistance at the $2000 level. The bears are looking for a breakdown below $1950 and then $1900 on a closing basis. The bulls have, thus far, held support at the $1950 area and as long as they do an upside move may follow in the days ahead.