Despite some seemingly bullish data released this morning, the gold market remains on the defensive following yesterday’s large sell-off. Spot prices are getting hit again today, declining by over $20 per ounce. Gold is well below the $2000 level at this time, and if the bulls do not step up soon could see further chart damage inflicted. It is important to keep in mind, however, that the market is due for some back and fill price action following the recent run higher. Given this, we would expect prices to find some footing fairly soon given the bullish outlook for gold.

The latest reading of consumer sentiment by the University of Michigan declined, and missed expectations by a mile. The reading of 59.7 was not even close to expectations for a reading of 61.4, and also represented a steep decline from the previous month’s reading of 62.8. Of course, the war in Ukraine may have a lot to do with this decline, but other issues also remain that may present problems for markets in the months ahead. Outside of the war, inflation remains a stubbornly persistent problem that is now hurting American consumers. The bite of gasoline at over $4.00 per gallon on average may continue to weigh on consumers, forcing them to cut back on spending. Any spending cutbacks could trickle into other key areas of the economy, and could even put the economy into recession if serious enough.

The Federal Reserve will almost certainly begin hiking interest rates next week with an initial 25-basis point hike to the Fed Funds Rate. This hike will likely be the first of many to be seen over the course of the year. The Fed has penciled in three rate hikes for 2022, but many analysts believe the central bank will be forced to hike rates four, five or even more times to get prices under control.  The threat of increasingly aggressive Fed action may keep stock investors under wraps and could even lead to a major trend change for equity markets and possibly a large-scale sell-off. Stocks have already seen a heavy increase in volatility in recent weeks and that volatility may be here to stay as long as the war in Eastern Europe continues. The Fed may have to factor in the war at some point when guiding policy, although for the time being it does not appear it would affect any change.

Some indications are pointing to the possible passing of key anxiety levels within markets. Treasury yields have been on the rise this week, while the price of crude oil has backed off sharply from recent 14-year highs seen. If worries over the war have in fact peaked at this point, investors will likely turn their attention to rising inflation. Expectations for inflation over the long-term have now risen as well, with the report also showing investors expect a rise of 5.4% over the next year. That is a strong rise from previous estimates of a 4.9% rise, and is the highest level in some 40 years.

The gold market hit a new all-time high today as risk aversion remains strong. News of a ban on Russian oil imports is playing a role today and the price of crude is higher by several percent. Higher prices for crude play into the ongoing inflation narrative, and stronger values for oil could translate into further gains for commodity prices across the board. Worries over global inflation combined with the ongoing Russian/Ukraine war are enough to drive investors into the perceived safety of gold. The market could now see itself off to the races, as there is no chart resistance ahead for higher prices.

Gold rising by over $80 per ounce today is impressive. We believe, however, that today’s price action was only a matter of time. What will be even more impressive, in our view, is when gold continues to trend higher and deeper into new all-time high territory. Some analysts have suggested today that $3000 per ounce gold is likely to be seen next. Such a move could happen, and happen quickly. Ongoing worries over inflation along with a deteriorating geopolitical scene could make gold the go-to asset class of the year. Investors appear to be viewing gold as an inflation, geopolitical and economic hedge, and that may keep buyers flooding into the market especially if recent strength is  maintained.

A de-escalation in Ukraine could have a major bearish impact on the price of gold, however, such an impact would likely be only for a short time. While the war in Ukraine is certainly adding to gold’s allure right now, the yellow metal is also moving higher due to inflation, lower stocks and other potential risks. A ceasefire in Ukraine could cause a short-term decline in the price of gold. Such a decline could be aggressively bought, however, as investors look to get on the rally train and participate in any further upside the metal may see.

As the U.S. and U.K. ban Russian oil, the price of crude stands to rise substantially further. Oil today is up over $3.50 per barrel, and in earlier action the crude market saw prices rise to nearly $130 per barrel. Russia has suggested that a rejection of their crude oil could play havoc on global markets and that the price of crude could soar to $300 per barrel or higher. While crude is nowhere near $300 per barrel as of yet, time will tell if the market does keep moving higher as demand remains robust among dwindling supplies. Either way, elevated crude oil prices may keep many commodities elevated and that will in turn keep inflation up for some time to come.

As Russian sanctions continue to take a toll, central bank buying in gold could see a lift this year. Due to the typical volumes involved, any central bank activity may keep the price of gold on the ascent and could keep individual investors motivated to buy as well.

The gold market had gotten the day off to a strong start, rising by several dollars per ounce. That initial strength quickly dissipated, however, once markets got the latest weekly jobless claims data. The weekly claims saw a moderate decline, and the decline of about 18,000 jobs put weekly claims below consensus estimates. Continuing jobless claims are now at a level not seen since 1970 in what may be viewed as a sign of economic strength. While the data took the wind out of gold’s sails in early action, the yellow metal has not fallen too far. In fact, any dips in gold are likely to be bought at this point, as the ongoing war in Ukraine and against inflation rage on.

Fed Chairman Jerome Powell will testify again today before lawmakers. Yesterday, Powell signaled that a 25-basis point rate hike was on the way and would be seen next month. While things can change, this likely puts an end to any debate over whether the Fed could hike rates by 50-basis points.

The war in Ukraine continues to have a significant market impact. Crude oil prices hit over $116 per barrel overnight, the highest level in over a dozen years. The dollar is also stronger today while the benchmark Ten-Year Note is seeing a yield of 1.854%. Market action points to ongoing uncertainty and traders as well as investors appear content playing it that way. Stocks are mixed in early action today as the VIX eases just slightly in early action. The gauge still reads over 30, however, and could have a lot of room to rise further if things deteriorate in Ukraine.

As the price of crude oil rises, the threat of an oil shock may also be on the rise. Traders and investors have thus far avoided Russian energy products in an effort to steer clear from any possible sanctions related troubles. In addition to this, OPEC has not signaled it would raise its quota-at least as of yet-and talks with Iran remain unresolved. The combination points to a troubling possibility of an oil shock. Tightening supplies may keep prices on the offensive in the weeks ahead. A major or sudden shortage, however, could fuel a price spike capable of crippling the economy. The threat of an oil shock comes at a very bad time, as people are already having to battle higher prices as inflation soars to levels not seen in decades.

The gold bulls will look to take prices beyond the February highs in the $1976 area. The bears will look for a decline below support at the $1850 level and then again at $1800. A move in either direction could be sustained and could see the market take off higher or lower. Of course, we feel right now that there are far more reasons for higher gold than lower, and as such will keep our eyes open for opportunities on the long side. Any dips seen in gold should be bought, barring a close below the levels mentioned above.

The gold market is showing some strong upside in early action Monday as the new trading week gets underway. The general sense of “risk-off” is being fueled by several issues, with the ongoing Russian/ Ukrainian war being at the forefront.  As the geopolitical situation deteriorates further, the risks to stocks and risk assets may increase further. This, in turn, may fuel further buying in perceived safe-haven assets such as gold, and the market could potentially see a rapid run to $2000 per ounce or higher.

Russia and Ukraine are supposed to hold talks today about a de-escalation. The President of Ukraine reportedly said he did not feel much would come of today’s talks. Russian President Vladimir Putin recently put his nuclear forces on high alert in another sign that he may be willing to go even further than previously thought. Some analysts believe that cyber attacks from Russia on the West could be seen next. With the Russian President having seemingly backed himself into a corner, some are also entertaining the worst possible outcome: A nuclear exchange between Russia and the U.S.

Recent sanctions slapped on Russia may very well cripple the nation’s economy. The removal of several Russian banks from the SWIFT system could also stop commodity trade from the region, possibly causing a further rise in commodity prices at a time when prices are already moving sharply higher.

As the effects of sanctions are felt, the Russian Ruble sank to a record low versus the dollar. The Russian central bank said it would begin to buy gold on the open market as it was also forced to raise its main interest rate from 9.5% to a whopping 20%. What Russia does next is anyone’s guess, but it seems that President Putin may hold the keys to the country’s future in his hands.

The gold market is also rising due to accelerating inflation. Prices remain high and could go even higher in the months ahead. While it was thought for a period of time that the Fed could hike rates by a half-point next month, the war has eroded that outlook and a 25-basis point hike is far more likely.  This hike is not likely to have much, if any, effect on inflation but may be the first of several hikes to be seen over the year. While the central bank has just three rate hikes penciled in thus far, most analysts agree that the Fed may have to hike rates four, five or even six times or more to gain the desired effect. The threat of several rate hikes may keep stock investors wary and could keep volatility elevated for much of the year.

The bulls remain in form control on the daily chart. The next upside target will be the recent highs in the $1970s. The bears will attempt to force a decline in price, ideally back below the $1850 level on a closing basis.

Its official-Russia has launched a full-scale invasion of Ukraine. After stationing troops along the border for weeks, Russia has now given the order to move into Ukraine. The news sent markets into a tailspin. Stocks were down sharply earlier in the day, with the Dow Jones Industrial Average declining by over 700 points at the session lows. Gold shot higher, trading up near the $2000 level in the overnight session, running out of gas around the $1976 area. The yellow metal ajs since backed off sharply, however, as traders and investors reassess the Ukraine/Russian conflict. The metal has, in fact, dropped below the $1900 level in late afternoon trade as the Biden Administration issues new sanctions against Russia.

The new sanctions announced by Biden today will target more Russian banks as well as the country’s ability to do business in alternative currencies including yen, pounds, euro and more. President Biden suggested that the war is a “premeditated attack” and Russia will now bear the consequences of its actions. The President reiterated that the sanctions are designed to have a long-term impact on Russia while minimizing any effects felt by the U.S. and its allies.  The Biden commentary sent markets moving. Gold declined and not only gave up all of its overnight and daily gains but went deeply into negative territory.

The Russian/Ukrainian war could have an effect on the Fed and its tightening plans. While the Fed is still expected to begin tightening next month, the pace of any further hikes could potentially be slowed due to the conflict. Not only are markets having to watch the effects of war, but there may also be the risk of an oil shock. Oil prices hit over $100 per barrel earlier in today’s session, and a rise in tensions over the conflict has the potential to disrupt supplies, possibly leading to sharply higher prices. Stronger crude would not be a good thing, either, as it may come at a time when inflationary pressures are already being felt by the public. Higher energy costs could cause the public to cut back on spending, and as spending declines, so does economic output.

Fed policy has already likely been very complicated due to the ongoing viral pandemic. Now, the Fed will also be forced to contend with war and the possibility of an oil or commodity spike. These issues may cause the central bank to rethink its plans, although they are unlikely to stop the Fed from taking interest rates higher. The issues may, rather, give the Fed reason to slow down their tightening or take a more modest approach to policy normalization.

Recent developments have lessened the likelihood of a half-point hike by the Fed next month. Fed Funds Futures now show a less than 10% probability of a half-point hike. The central bank will almost certainly hike by 25 basis points, as usual, and point to further hikes down the road.