The gold market is sharply higher on Wednesday as demand for safety takes center stage. The war in Gaza has taken a nasty turn for the worse. It was reported that an Israeli bomb hit a hospital in Gaza, killing 500 people. Hamas has blamed an Israeli air strike for the tragedy while Israeli has suggested that an errant Hamas missile is to blame. Whatever the case may be, the war appears to be getting nastier at this point and more violence may be seen before any type of conclusion is seen.

 

Of particular concern to global financial markets is the potential for additional actors to get involved in the conflict. The United States has already placed significant firepower within the region, including its newest supercarrier battle group. If the U.S. were to get involved, other nations such as Iran may also see fit to get into the mix, and World War III could be underway. The conflict has fortunately not reached that point, at least not yet, but the longer the battle rages on the more likely U.S. involvement may become.

 

The war in Israel is not the only war going on. The war in Ukraine continues to rage on as well, and there have thus far been no signs of a slowdown in that conflict. As long as battles are taking place anywhere on the globe, safe-haven demand for gold could rise and rise substantially. The wars taking place are already having a large impact on the price of gold, which has risen significantly in recent days and is sharply higher today. The gains seen in recent sessions could be magnified if the situations escalate further and could provide the bulls with the needed catalyst to produce a close and sustainable rally over the $2,000 level.

 

War is not the only issue affecting gold. The persistent inflation and higher interest rates are also important factor for the metals markets. Although the Fed may not continue to take rates even higher, it has suggested that rates would remain higher for longer. The Fed is unlikely, at this point, to signal a rate reversal until signs emerge of an impending recession. Those signs have remained elusive thus far, however, and the Fed may now find itself in a good spot to maintain higher rate levels to try to cool inflation. Price pressures have come down, without a doubt, but they remain stubbornly elevated and far from the Fed’s desired target of 2% annualized.

 

The gold bears are still in control on the daily chart, but not by much. The four-month-old downtrend on the daily chart is about to be negated, and any further upside will reverse that trend to up rather than down. The bulls are eyeing a close above the $2,000 as an indication of further strength. The bears are looking to produce a close below the $1,800 level, which seems a long way off at this point. The bulls are now within a day or two of striking and testing the $2,000 level, and such a test could determine the market’s direction for the months ahead.

The gold market finished the session higher on Monday by nearly $10 per ounce. The upside in the market was relatively quiet, however, and will likely remain that way until the Fed announces its decision on rates Wednesday afternoon. The central bank is widely expected to hold rates steady this week while maintaining its recent hawkish bias. A rate hike this week could send markets into a tizzy, while an overly dovish press conference could also do the same.

 

Markets will pay close attention to the Fed’s press conference following the announcement on rates. The central bank will, in all likeliness, maintain its hawkish stance on rates and could suggest more hikes will be seen in the months ahead. On the other hand, the Fed could also pivot and suggest a more dovish course of action ahead. Whatever the Fed does or does not do, markets may see some volatility post-announcement and gold could see some significant price appreciation if circumstances warrant.

 

Interest rates and the Fed are not the only major potential drivers of gold prices right now, either. There has been more and more talk of the dollar and its potential end looming. The dollar has already lost the majority of its value in recent decades. The currency was once viewed as the global reserve currency of choice. While it maintains that view today, its hold on the top position has become increasingly loose in recent years. Russia, China, and other nations have all taken steps to move away from the dollar for transacting crude oil and other commodities, and that trend is likely to continue.

 

A major breakdown of the dollar in the years ahead could see gold run into fresh all-time high territory and do so quickly. The gold bulls may simply be biding their time until the paper currency finally does collapse.

 

The gold bears have control of the market on the daily chart at this point. The four-month-old downtrend remains in place and the bulls have considerable work to do to neutralize it. The September highs around $1,980 are the first likely bullish target, followed by the $2,000 level. A solid close above $2,000 may signal to other bulls that the market is headed higher and could draw more buyers in. The bears, on the other hand, are targeting last Friday’s lows around $1,920 and then the $1,900 level. A breakdown below $1,900 would likely attract more short sellers into the market and could potentially fuel a move lower toward $1,800.

 

 

The bulls will likely need a fresh catalyst to stage a sustainable rally above the $2,000 area. This catalyst could take the shape of a dovish Fed or rate decreases, a major dollar collapse, or a recession. The market may remain range-bound until a new catalyst presents itself and may not do much of anything in the weeks and months ahead.

A rally in the Dollar Index as well as weaker crude oil prices were not the only factors sinking gold in today’s action. Weaker-than-expected data out of China overnight also sunk the metals and may keep the bulls second-guessing their intentions. The world’s second-largest economy saw its exports decline by 14.5% in July, year-over-year, and that represents the steepest decline since the Covid period of February 2020. Imports were also lower-than-expected, declining by 12.4%. The lack of encouraging news from China may keep its central bank busy. More stimulus measures could be seen in China shortly.

 

Key inflation data is also set for release this week in both the U.S. and China. The Consumer Price Index and Producer Price Index are both set for release on Thursday and Friday of this week. The data sets are expected to show a slight uptick from the previous readings and could be market-moving if the uptick is enough. A miss in these data points could have a bullish impact on gold and stocks, as worries over price pressures may recede further if the data suggests it. Inflation has been a focal point for financial markets for some time now, and the Federal Reserve has hiked interest rates aggressively to combat it.

 

Inflation is likely to remain an area of focus regardless of what this week’s data may suggest. The Fed has, for now, appeared to reach a point at which it is comfortable maintaining rates rather than continuing to raise them. The Fed could elect to keep hiking, however, if the data suggests it is necessary. Gold, equities, and other markets may find themselves in a holding pattern until more is known about the central bank’s plans going forward. The end of summer is also approaching, and more investors may be taking last-minute getaways before the kids go back to school. This could lead to less-than-stellar price action in the weeks ahead.

 

The bears are in control of the daily chart currently. They will look to take out the June lows around $1,939 before gaining further momentum. The bulls still need to produce a close above the key $2,000 level. The market has exceeded this level on prior occasions but has yet to put together a sustainable move higher. A solid close above the $2,000 level could set the stage for the bulls to take the market higher. If able to sustain such a move, the bulls could even target previous all-time highs in a short period of time. They currently appear to be lacking a sufficient catalyst to take the metal higher, however and may need to wait until the summer is over before significant trading volumes return. That could make the next several weeks a bit more interesting as either the bulls or the bears lay a possible foundation for what may be to come once the fall gets underway.

The gold market is holding strong and near-session highs following the latest Fed rate hike. The Fed just raised its main interest rate by another 25 basis points, putting interest rates at a 22-year high. The markets showed little initial reaction to the rate hike, which was fully expected to happen. Markets are likely to be far more interested in Fed Chief Jerome Powell’s remarks at the press conference that follows the rate decision.

 

Markets will likely now be wondering whether Powell and the Fed will continue to lean hawkish or if they ease up a bit given the weaker recent inflation readings. Powell’s commentary could certainly be market-moving, and even if not today, his comments may send gold and stocks moving up or down in the days ahead. The reaction, if any, by gold, stocks, and other markets is likely to depend on whether more hikes are expected in the coming months. The Fed has now raised rates 10 times in its efforts to combat runaway inflation, and despite still being over its desired target, inflation has come in quite a bit in the last few months. If the Fed signals it is comfortable with rates where they are at, gold and markets could see a rally. If the Fed gives the impression that more hikes are still to come, gold and other markets could come under renewed selling pressure.

 

The Federal Reserve and its plans for interest rates are major factor for gold and other markets. They are not the only factor, however. The ongoing war in Ukraine may also play a role. Increased tensions between the U.S. and Russia could keep buyers interested in gold, and any further geopolitical issues could elevate the market substantially. Worries over a nuclear attack, Chinese invasion of Taiwan or other acts of violence may keep buyers looking to gold to protect their holdings. If the number of unknowns should rise around the globe, it could keep gold on the offensive.

 

The gold bulls have the advantage on the daily chart. That advantage is not by much, however, and the bulls will need to exhibit some fresh buying power soon in order to keep the bears at bay. The three-week old uptrend on the daily chart is still intact, albeit not by much. The bulls will need to produce a close above the $2,000 level soon to keep momentum going. Failure by the bulls to do so may lead to the bears taking over control of the market. The bears would look to produce a close first below the $1,950 level and then the $1,900 level. A close below the $1,900 level would be especially bearish, as it could likely force the bulls in the market to throw in the towel and give up. The market is now within striking distance of the $2,000 level, and a test of this key barrier may be seen in the days ahead.

The gold market is trading just above the unchanged mark in afternoon action Monday. Up by less than $1 per ounce, the yellow metal has been slightly higher and slightly lower on the day. Lazy summertime price action like this is typical this time of year, and several more weeks of this could be seen in the absence of any fresh bullish or bearish catalysts. This week will have numerous pieces of economic data for the markets to digest, and inflation data, in particular, could be market-moving for gold.

 

Likely the biggest potential data point of the week will be Wednesday’s release of the latest Consumer Price Index data for June. The report is expected to show a rise of 5.0% year-over-year compared to the prior reading of 5.3% in May. The report will be followed up by the most recent Producer Price Index data set for release the day after. Inflation has been the focal point of the financial media for some time now. A large increase in Wednesday’s CPI data has the potential to fuel significant selling across asset classes. A sharp decline, however, could have the opposite effect and could send buyers into the markets in a hurry. A large hit or miss could also affect the Fed and its decisions regarding policy this month when it meets.

 

An inflationary reading below 5% may be something that is celebrated, but it is still far exceeding the Fed’s desired target of a 2% annual rate. If the inflation data this week is at or near expectations, the Fed will almost certainly hold course. Although the central bank may refrain from hiking rates further, it is unlikely to begin lowering them at the same time. The Fed could, therefore, discuss at its next meeting its plans to hold rates steady for some time yet.

 

In addition to the Fed and its policy on interest rates, markets will also continue to pay close attention to the global geopolitical landscape. The war in Ukraine rages on, and worries are increasing that Russia could turn to nuclear weapons in the months ahead. The Russian invasion of Ukraine is not only a source of concern, but it is fueling other sources of worry as well. A Chinese invasion of Taiwan, for example, would almost certainly pull the United States into an armed conflict. The potential for World War III is certainly present, and global leadership will have to tread carefully to avoid it.

 

The many unknowns surrounding monetary policy and global conflicts are likely to keep demand for gold robust in the months ahead. As we get deeper into July, however, price action may become increasingly sideways with little to no sustained movement in either direction. In the meantime, the bears remain in control of the market which has been trending lower for several weeks now. The bulls need to produce a close above resistance at the $1,950 level to attract more interest and take advantage of the momentum.