The gold market is sharply lower today as rising bond yields and a stronger dollar take their toll. Spot gold prices are down by over $25 per ounce at $1953 and change in mid-morning action. Thus far, the yellow metal has been able to hold key support in what may be an encouraging sign for the bulls. The dollar has hit 101 today, reaching its highest level in two years. The yield of the benchmark 10-Year Note is now within striking distance of 3%, the highest level seen since March of 2018.

 

Despite these two markets having a negative impact on the gold market, the effects have thus far been fairly limited. The gold market appears to have some underlying strength that has put it into a two steps forward, one step back type of price action. Today’s declines could be nothing more than some profit taking after the market tested and was rejected at the $2000 level.

 

Despite the bearish outside market action being seen today, the gold market still stands to benefit from ongoing uncertainty surrounding the war in Ukraine. The war appears set to take an even bloodier turn, and as tensions mount further, inflows into the gold market could see a substantial increase. Investors have been busy buying into gold ETFs in a sign that the investing public still sees plenty of value in the yellow metal. Gold stands to rise further in the months ahead as inflation and the war fuel risk aversion and buyers seeking out perceived safety assets. The yellow metal could rise significantly even as rates rise, the Fed becomes increasingly aggressive and the dollar also gains ground. Normally, these issues could provide a serious barrier to higher gold prices. In the current world, however, the metal stands to gain as the bullish issues outweigh the bearish issues.

 

The gold bulls are still in control on the daily chart despite today’s decline. The bulls are still looking for a close above resistance at the $2000 level. A move above this area could see the market rocket sharply higher in rapid fashion, putting new all-time highs within reach in a short period of time. The bears are still looking for a decline. They first want a close below the $1950 level, followed by a drop to the $1900 area. The bears will certainly need some key lower closes in order to attract more selling interest and to shake out some of the weak longs.

 

For the time being and likely the foreseeable future, the gold market is and will remain a buy the dips market. The bulls have the path of least resistance to take prices higher and any dips (such as the dip being seen today) are likely to be aggressively bought by the bulls. The market is likely to be tested, however, as the Fed may look to raise rates by 50-basis points at each of its next two meetings. The threat of higher rates has thus far not been a major influence on gold, although it remains unclear if such a move by the Fed could put a major dent into sentiment.

The gold market is off a few dollars per ounce in early action Thursday as the bulls take a breather. Spot gold prices are down by almost $6 per ounce on a busy economic data day as some back and fill trade takes place. Today’s decline should not only not be a cause for concern but in fact should be welcomed. Markets rarely, if ever,  move straight up or down. Today’s pullback may be nothing more than a healthy pause before the bulls look to take prices here again.

 

While the war in Ukraine rages on, Russian President Putin has again threatened the use of atomic weapons. In a threat against NATO, Putin reportedly suggested he would deploy those weapons in and around the Baltic if Sweden and Switzerland join the alliance. The war could be on the verge of a significant turn towards even more bloodshed and civilian deaths. The world is watching closely, although there may not be much more that other nations can do outside of sending troops.

 

In addition to the war, markets are also playing close attention to ongoing Covid developments in China. The country has already implemented lockdowns in parts of the country, including Shanghai, and President Xi Jinpoing reportedly sees no alternative to a zero-tolerance approach. The lockdowns in China may have a ripple effect that makes its way through all global markets within weeks. As the globe’s second-largest economy, any downturns in Chinese demand could weaken commodity prices. Crude oil, for example, could be quite a bit higher from current levels if Chinese demand were at full capacity.

 

The Chinese Central Bank appears ready to lower interest rates and reduce reserve requirements for banks. These actions are intended to free up liquidity in order to combat the slowdown seen due to Covid even though they may come at a particularly challenging time as inflation runs super hot around the globe.

 

The European Central Bank is meeting this morning and no changes are expected to its policy at the conclusion. The markets may listen carefully to the bank’s post-meeting commentary, however, looking for any clues about its policy plans going forward.

 

Outside markets are calm and may not be much of a factor in price action today. Crude oil and the dollar are both lower on the session. Yields on the 10-Year Note are stable at 2.675%. Rising yields have been a major source of market concern in recent months and the ascent may not yet be over. If yields continue to push higher, market dynamics could see a significant change as investors rethink where they put their capital to work.

The gold bulls will continue to look for a close above resistance at the $2000 level. A move above could set the stage for a rapid run higher that could take the metal to previous all-time highs or well beyond. The bears are looking to produce a close below $1900 and then $1850. There may be little, if anything, for the bears to get excited about without a move towards those levels.

The gold market is solidly higher today as the bulls gain further momentum. Spot prices are up over $15 per ounce as of this writing and currently stand at over $1969. The bulls could look for a push this week to take prices above resistance at the $2000 level. A failure at this level could set the stage for a reversal, however, and prices could see a significant decline if longs elect to bail out of positions. The bulls are out in force today following a hot inflation report and sharp rally in crude oil prices.

 

Inflation remains the talk of the town outside of the ongoing war in Ukraine. In the key data point of the week, the Consumer Price Index registered a reading of 8.5% year-over-year this morning, marking the highest rise in 40 years. Estimates were looking for a rise of 8.4%. On Wednesday, markets will get the latest reading of the Producer Price Index. This gauge will also likely show inflation running very hot and at multi-decade highs. Higher inflation levels have historically been bullish for hard assets like gold and this week may prove to be no different.

 

The Russian/Ukrainian war is now expected to take a bloodier tone. European countries may now be shifting their focus to arming the Ukrainians rather than implementing additional sanctions against Russia. The war may turn out to be far more protracted than previously thought and the fighting may intensify from this point forward after peace talks have reportedly stalled.

 

Outside markets are on the move as well. Crude oil is up several dollars on the day and is sitting around $105 per barrel. The Dollar Index is also up on the session and is sitting near a two-year high. The benchmark 10-year Note yield is now fetching 2.7% and could rise further in the weeks ahead.

 

Although the Fed has acknowledged the problem inflation poses and will attempt to get it under control through as many as seven rate hikes this year, higher rates are unlikely to have much impact on the gold price in the year ahead. Real interest rates are unlikely to go positive, and until they do, rate hikes may not even make the gold market flinch. Despite the threat of higher interest rates in 2022, the gold bulls may remain undeterred and may continue to buy any dips until proven otherwise. The same may be said for the investing public. The attraction of price dips to long-term buyers may prevent any significant declines in the gold market and could keep it moving higher into fresh all-time highs.

 

The bulls remain in control of the daily chart as prices hit a four-week high today. The objective for the bulls, in the short-term, is to produce a close above resistance at the $2000 level. The bears will look for a decline to produce a close below the $1915 area and then $1850.

 

The worries over inflation have caused the Federal Reserve to take on a much more hawkish approach to monetary policy than originally anticipated. The Fed has already raised rates by 25-basis points and now believes it will have to hike rates another six times for a total of seven rate hikes this year. Not only is the Fed looking to hike a lot of times, but it is also even considering raising rates by 50-basis points rather than 25. If the Fed elects to do so, it would be the first such hike since the early 2000s and it has the potential to slow the economy drastically.

 

To be clear, higher interest rates do not always or automatically equal recession. The stock market has, however, grown very accustomed to ultra-low interest rates and easy monetary policy. Many analysts believe this policy has been the primary factor for stocks reaching new all-time highs and seemingly trending higher regardless of what has been thrown at the market in over a decade. The easy money party may be coming to an end, however, and some are betting that the end of easy money means the end of easy equity gains.

 

On Tuesday, Deutsche Bank became the latest investment bank to voice its concerns over the possibility of recession. The bank said that the economy will take a “major hit” during 2023 and 2024 and that the end result of an increasingly hawkish Fed looks recessionary. Deutsche Bank economists suggested that there may be two quarters of negative growth and a more than 1.5% rise in the unemployment rate. These would both be recessionary factors, although they could only point to a moderate recession.

 

Downside risks remain, however, and could put the U.S. on a much more negative path going forward. A more severe downturn cannot be ruled out, and the threat of such a downturn may change market dynamics for years to come.

 

Investors will pay close attention to Wednesday’s release of the latest FOMC meeting minutes. They will closely scrutinize the minutes looking for any clues about the potential for a 50-point hike in May. Fed Chairman Jerome Powell has said that the U.S. economy can handle higher rates. That notion may be tested sooner rather than later, however, if the Fed elects to become more aggressive. The CME Fedwatch Tool is currently pricing in a nearly 78% chance of a 50-basis point hike in May. The Fed minutes this week could reinforce that idea or give reason to lower those odds.

 

For the time being, the gold market may continue to maintain its recent trading range.  Any clues derived from the minutes or other Fed commentary could, however, send gold higher or lower, possibly breaking out of the recent range in the process. The bulls will still aim for a close above last week’s highs in the $1967 area while the bears will look to produce a close below $1900 and then $1850.

The gold market is moderately higher in early action Thursday as the latest reading of inflation remains stubbornly high. The yellow metal is moving up as stocks show more weakness and as crude oil declines while the dollar strengthens. The Biden Administration has been discussing releasing crude from the Strategic Petroleum Reserve to the tune of some 1 million barrels per day for a total release of some 180 million barrels. The OPEC cartel is meeting today to discuss their production going forward, and changes to production levels could potentially be seen from May going forward.

 

While the crude oil market is certain oy playing a role in gold’s fortunes, the dollar is also an important outside player. Today, the dollar is higher on the session and since trending higher throughout February and much of March, the currency has been sideways to lower. The dollar has once again bounced off of the 98 level, however, in what some may view as a bullish sign. A breakdown below the 98 level on a closing basis could set the stage for a sharp decline further, possibly seeing the currency fall to 96 before finding some solid support. Any weakness in the dollar is likely to have a strong benefit for gold as it makes the metal relatively less expensive for foreign buyers.

 

Of course, in addition to the crude market and the dollar, inflation also remains the subject of much debate and a major problem for global markets. A key inflation gauge monitored by the Fed saw a rise of 6.4% in February for a 40-year high. Stripping out the volatile food and energy markets, core inflation still hit a rise of 5.4% from the same period 12 months earlier. Strong consumer demand has combined with shortages of goods and supplies to fuel the sharpest rise in inflation in four decades. As if these figures were not bad enough, they will almost certainly worsen in the months ahead as these readings did not even factor in the Russian invasion of Ukraine.

 

As inflation squeezes American wallets, consumer spending is likely to fall. Consumers reportedly increased their spending in February by a skinny .2%, far below the rise of 2.7% seen in January. Adjusted for inflation, spending actually saw a decline of .4% last month and further declines could push the U.S. into economic recession. A brief inversion of the yield curve this week could also point to a looming recession, and fears over a major economic slowdown could fuel stock market volatility for months to come.

 

Spot gold is up nearly $7 per ounce in early action today at $1939.60. The bulls have their work cut out for them, as they will need to produce a close above resistance at the $2000 level before anyone gets overly excited. The bears, on the other hand, are still trying to take prices lower to produce a close below the $1850 level. This seems unlikely, however, given how dips have been bought thus far.