Gold Lower As Inflation Stays Hot

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The gold market is sharply lower in mid-morning trade as the latest reading on inflation remained elevated. It was reported this morning that the third-quarter Employment Cost Index showed a rise of 1.3%. This reading was higher than estimates which were looking for a rise of .9%. The 4.4% year-over-year reading falls into the camp of the monetary policy hawks and could drive the Fed to tighten policy sooner than many would like. The possibility of Fed action is fueling a rally in the dollar today while also pushing treasury yields higher.

 

The Eurozone reported overnight its hottest inflation reading since 2008. October CPI rose 4.1%, a figure that stood well above the September reading of 3.4%.

 

The  notion of higher and problematic inflation is nothing new. The last several months have seen rising prices combined with shipping and supply bottlenecks that are causing a variety of disturbances across the globe. The Federal Reserve has, thus far, maintained its view that inflationary pressures are “transitory” in nature and will likely soon pass. Recent data may suggest otherwise, however, and the Fed could already find itself well behind the inflation curve.

 

The longer the Federal Reserve and other global central banks choose to ignore the inflation problem, the worse the problem may become over time. If inflation accelerates further, central banks could have little choice left but to begin raising interest rates at a rapid pace. The effects of such central bank action could be serious and far-reaching. A rapid rise in rates would likely squash the economic recovery. As money tightens, the economy could not only slow significantly but could even enter recession again. The spiral lower could take years to overcome and central banks could find themselves right back where they started-having to take rates lower again to boost economic output.

 

Having already backed itself into a dangerous corner, the fed could very well end up running in circles once again. As it does so, the value of the dollar could decline and decline sharply. A falling currency value not only boosts the inflation scenario, but also can become a major contributor to a slower economy and recession. The bottom line is that there is no simple, easy way out for central banks. Years and years of easy money policies will be paid for, at some point, and may take years to return the global state of monetary policy to a normalized state.

 

Gold has been trading in a range for months now. That range may soon be broken, however, as the laws

of supply and demand take hold. The bulls still need a breakout above resistance in the mid 1830s to get people excited and attract more buying interest. The bears are looking to take prices down below the $1700 level, on a closing basis, before attempting a run at $1670. A breakdown below this level could signal a new stage of lower prices for gold and could attract a swarm of fresh sellers into the market.

Gold Awaiting Fresh Inputs

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The gold market is off to a slow start Wednesday as the trading week nears the halfway point. Spot gold is slightly lower in early morning action, trading down some $5.40 per ounce. The decline has not taken the yellow metal far from the $1800 level, however, and the bulls are still very much within striking distance of taking out a key level of technical resistance.

 

Stocks and investor appetite remain well oiled coming into today and hunger for risk remains elevated. Third quarter earnings reports have thus far not disappointed as the majority of them are exceeding expectations. Whether such good earnings will be sustained is another question entirely, however, and may be a source of concern for equity bulls.

 

Some possible bumps have developed and are on the horizon now. The world’s second largest economy, China, has already seen its economy slow significantly. The globe’s second largest economy is dealing with several major issues that have the potential to keep its growth under wraps. The ongoing energy crisis, for one, could keep China from being able to manufacture certain components and parts due to the lack of raw materials. This not only affects China but can also affect the nations that China supplies with these materials. In addition to the energy shortage, China is also dealing with a resurgence of Covid-19 cases in some regions that may also have a significant impact on productivity. The country is also having to deal with an overheated housing market and other issues that could force its central bank to tighten policy and reign in the supply of money.

 

Although U.S./Chinese relations have been good for the most part, tensions have been ratcheted up this week. The U.S. recently banned Chinese telecommunications giant, China Telecom, from doing business in the U.S. There may be more to come on this story, and it does have the potential to set off a tit for tat showdown between the world’s first and second largest economies.

 

The price of gold is in a month old uptrend on the daily chart. The bulls are in control, but will need to extend the recent rally soon in order to stay in control. The $1800 level remains an important chart point. Resistance in the mid-1830s may be even more important at this point, however. If the bulls are able to take this level out on a closing basis, it could set the stage for additional buyers to enter the market and for prices

to rise further. A lack of a rally above this level, on the other hand, could pave the way for the bears to take over. If the market tries and fails to move higher once again, it could signal an overall weakness for the bears to seize and take advantage of. The first major target on the downside is $1750. A breakdown below this level, on a closing basis, would almost certainly point to more downside ahead and a significant leg lower.

Can Gold Close Above $1800?

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The gold market is off to a strong start as the new trading week gets underway. The yellow metal is modestly higher in early morning trade, with spot prices climbing back above the key $1800 level to sit at $1807 and change. The question many investors may now have is whether the metal will be able to sustain these gains throughout the session and actually close above this level. If so, it could potentially prove to be a major turning point for the market and could lead to further buying tomorrow and throughout the rest of the week.

 

The gold market is higher today as investors continue to fear inflation. The inflation genie has apparently been let out of the bottle, and many now believe that the current bout of inflation will not be transitory as the Federal Reserve has suggested several times.

 

Stocks have continued to climb from their October lows as the wave of corporate earnings has largely been solid. This is a big week for corporate earnings reports, and those reports could send stocks to new all-time highs or fuel a significant pullback from recent levels. If recent trends continue, however, the earnings released this week may be great and could ignite a sense of bullish optimism for stock investors that could potentially weigh on the gold market. Despite whatever stocks do or do not do, gold may also remain a center of focus for investors who are concerned about the future prospects of inflation.

 

Despite what the Fed and its officials have said time and time again, the idea of inflation simply being “transitory” in nature appears to be increasingly unlikely. The massive shipping and supply bottlenecks, seen all over the globe, are proof that these issues may take time, and a significant amount of time at that, to be resolved. If the current state of inflation remains longer than  anticipated, it could spell real trouble not only for consumers but for central banks as well.

 

The Federal Reserve, for example, could be forced to begin hiking interest rates sooner than it has planned in order to combat rising price pressures. These rate hikes may help quall inflation, but also come at a cost. Higher rates could cripple the economic recovery and could even send the economy back into a full-blown recession. The slightest misstep by the Fed could have dramatic and long-lasting consequences that could affect the lives of consumers, businesses and the government for many years to come. The Fed could, however, elect to ignore the threat of inflation as it appears to be doing now, and could maintain ultra-low rates with or without monthly asset purchases or QE.

The many unknowns surrounding inflation  and central banks could keep a strong bid going in gold for the time being. With so many reasons outside of inflation to buy and hold physical gold, it seems now may be the ideal time to build an allocation or  add to existing holdings.

Powell’s Message Heard Loud And Clear

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The gold market had an interesting day, running sharply higher before seemingly running out of gas and falling back again. The market still finished the day session up modestly, but the day was a loser from a technical standpoint. After rising to well above the $1800 level in earlier action, the bulls found reason to quit on the day’s rally and prices closed below the technically key $1800 level.

 

The reason for the bulls running out of steam today seems to be clear. Commentary from Fed Chairman Jerome Powell seemed to deflate the rally and market optimism as he threw a bucket of ice cold water on the day’s price action and rally higher. In an online conference held by the South African Reserve Bank, Powell suggested that the central bank is still on track to begin cutting its monthly security purchases, or QE, before the end of the year. The Fed’s monthly purchases are now likely to end by mid-2022 as the Fed seeks to return policy to a degree of normality.

 

The gold bulls heard Powell’s commentary loud and clear as gold declined by $30 per ounce from the session highs in the aftermath of his comments. Powell did suggest, however, that inflation could possibly remain elevated through 2022 as supply bottlenecks are worked out. The working out of these bottlenecks could fuel a drop in inflationary pressures, with the annual rate declining back towards the central bank’s desired 2% target. Such a scenario seems to be more of a best case scenario, however, and inflation still has the potential to remain longer and/or creep even higher.

 

The Fed’s monetary policy has been a major factor

for gold in recent months. Although no changes have yet to be made, the anticipation of change has kept markets on the move with a degree of volatility sprinkled in here and there. Despite the Fed’s ongoing opinion that inflation is transitory in nature, the threat of rising prices could keep buyers going to gold and alternative asset classes such as crypto. Bitcoin, for example, made new all-time highs this week hitting over $67,000 per unit. The search for alternative assets could keep a bid going in both gold and Bitcoin for the time being. These assets could see drastically higher price levels in the months and years ahead if inflation pressures remain. Despite what Powell said today, the Fed could already be far behind the inflation curve and that could make higher prices here to stay.

 

The lack of a close above the $1800 level may give the bulls reason for pause early next week. If the bulls are able to mount a challenge of $1800 and take it out on a closing basis, the path could be set for a run towards resistance in the mid-1830s. If that area were breached on a closing basis to the upside, lookout as prices could potentially run sharply higher in short order, possibly even challenging the $1900 area within days or weeks.

 

A failure to close above $1800 could reignite bearish excitement, however, and could encourage more bulls to throw in the towel and more traders to play the short side of the market. In that case, a quick decline towards the $1700 level could potentially be seen.

Inflation Worries Fuel Today’s Pop

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The gold market is sharply higher in late morning trade today as concerns over inflation mount. Spot gold is up some $16 per ounce, now standing at $1785 and change. After some rough going in recent weeks, the metal has recovered and is now within striking distance of previous resistance at the $1800 level.

 

The yellow metal is moving sharply higher today even as stocks also put in a strong performance. The benchmark Dow Jones Industrial Average is up nearly 200 points in late morning action. Recent equity upside has put the benchmarks within striking distance of previous all-time highs. If stocks can continue to mount an offensive even  with the threat of higher inflation and other factors, new all-time highs are not only possible but probable.

 

The desire for alternative assets is also driving a record run for Bitcoin today which has now eclipsed its previous all-time highs. The digital currency is up over $2000 per unit today and now stands at nearly $67,000 per unit. The lack of upside chart resistance from here could make for a heck of a run higher. Bitcoin could

easily shoot to the $100,000 level or higher in short order and may never look back. Gold’s gains today, despite the upside in Bitcoin, make the market even more impressive and could point to further gains in the days ahead.

 

Also providing gold a boost today is a weaker dollar and stronger crude oil. Yields have been mostly stable,  witb the benchmark 10-year Treasury yielding about 1.65% today. A rapid and sharp rise in yields has been the subject of much fear in recent months, although such a rise has yet to materialize. Nevertheless, a sharp or rapid rise in yields could provide investors with reason to steer clear of gold, although such a scenario seems very unlikely at this point.

 

Gold’s improving chart posture may attract further buyers in the days ahead. The gold bulls are in control of the daily chart and have improved upon a three-week old uptrend. The real tests for the bulls lie first at $1800 and then the mid-1830s. If the bulls are able to take out the mid-1830s on a closing basis it could pave the way for sharper gains to follow. A failure to take this level out may exhaust the bulls, however, and could lead to a sharp price reversal that may put the bears in the driver’s seat.

 

The gold market has been in a consolidation phase for several weeks now. That sideways price action could continue, although it l;ikely will not go on forever. The longer the market spends in recent areas, the greater the potential breakout or breakdown may be. The fear of inflation may keep the bulls on the offensive and could provide solid reason for any significant dips to be bought. Dollar weakness, dovish monetary policies and other factors may also contribute to gold’s bullishness in the months ahead.

IMF Trims Global Growth Forecasts

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The gold market is seeing some upside in early action Tuesday as the International Monetary Fund, or IMF, trimmed its global growth forecast. The organization cited numerous reasons for the cut that included supply chain issues, the Delta variant and price pressures. The forecast for 2021 now stands at 5.9%, down from 6%. There were no changes made to the 2022 forecast.

 

The IMF described the revision as modest while it said that the effects for some countries would be large downgrades. The IMF said the outlook for low-income developing countries has declined significantly, largely due to the ongoing viral pandemic. The outlook for developed nations also signifies difficulties due to supply chain constraints and other factors. Such supply disruptions caused a decline in the U.S. forecast from 7% to 6%. The report went on to suggest that if the U.S. does not pass the Biden infrastructure plan, it could cut its forecast even further.

 

The IMF discussed its views and said that the effects of Covid-19 may fuel increased risks to the economy. It also said that it was concerned about the possibility of a divergence in economic prospects across nations. This makes sense, given the fact that some 96% of the population in low-income countries remains unvaccinated.

 

The report pointed out inflation risks that may be skewed to the upside while growth risks are pointing to the downside. This could lead to central banks being forced to move and move quickly if inflation remains stubbornly high.

 

The report fueled some buying in the gold market which saw double-digit gains following it. The buying pressure was likely partly alleviated by a stronger dollar, however.

 

The threat of rising inflation remains at the center of investors’ attention. With inflation reports due for release tomorrow and Thursday, traders appear increasingly nervous. These reports will be closely scrutinized and could be market moving if any significant data is seen. Markets are not only worried about inflation, but are also still concerned over Chinese company Evergrande. The massive property company recently reportedly missed another large debt payment. This is causing some fear of contagion in the marketplace and any new developments will be closely monitored by market participants.

 

As the next several weeks unfold, markets are likely to pay very close attention to the data stream. Any data strength may give the Fed further reason to announce tapering at its meeting next month. Any weakness could, however, keep the central bank on hold until sometime next year. Any uncertainty surrounding the Fed and its plans could keep volatility on the rise into next year and could fuel demand for safe haven assets such as gold.

 

For the time being, gold remains in no man’s land. The bulls will look to target the $1800 and then the mid 1830s on a closing basis to build momentum. The bears will target further downside to $1700 and then $1670 on a closing basis to build their case.

Rising Yields and a Stronger Dollar

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The gold market is slightly higher in mid-morning trade Monday after moving lower earlier in the session. Spot prices are up some $1.40 per ounce as the market appears to be awaiting further inputs. Rising bond yields and a stronger dollar may be the story today.

 

The benchmark 10-eay treasury yield currently sits around 1.61%. Yields have been trending higher recently, however, and could potentially point to trouble ahead. Higher bond yields could be indicative of rising inflation and may even lead to a prolonged period of stagflation in which inflation climbs while economic growth slows. Today is the Columbus Day Holiday in the U.S. United States banks and treasury markets are closed today and these closures could make for some quieter trading today. With a very light data docket for today, investors may choose to largely sit on the sidelines and markets could end up drifting for much of the session.

 

The gold market seemingly wants to remain in its current comfort zone. The bulls have had little to sow on the upside while the bears have also been unable to fuel a significant downside breakdown. Which side will eventually succeed remains the topic of debate. Despite rising bond yields, the threat of Fed tapering and other bearish issues, the gold market still has numerous reasons to rise, and rise substantially. Dollar weakness, the inability of the Fed to exit its unorthodox policies, higher inflation and more are all good reasons to buy and hold physical coin and bullion.

 

For the patient, long-term investor, any further weakness for gold should make for an excellent buying opportunity. A breakdown below the $1670 level would likely fuel a stampede of buyers entering the market and the market could see a significant and rapid reversal back to the upside. Likewise, the market may see an increase in buying activity on any exhibitions of strength. If the gold bulls are able to take out the mid-1830s on a closing basis, for example, the market is likely to benefit from short-term traders and momentum players getting long. Current price levels do not, however, warrant much excitement and the market is really in no man’s land right now.

 

While markets do spend a lot or even the majority of their time in a trading range or moving sideways, such periods of consolidation do not last forever. At some point, the laws of supply and demand will dictate a significant move higher or lower. We still believe that gold will hit $3000 or $5000 per ounce in the months or years ahead. The question in our view is not if but when. This outlook makes now a great time to buy physical gold. Any dips in price from recent levels should not be viewed with a sourness but should be welcomed with open arms as an opportunity to acquire even more gold while it is on sale.

Gold Higher As Jobs Growth Sinks

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The gold market is moving higher in early action Friday as markets digest the latest jobs data. The September non-farm payrolls report released earlier today showed weak job growth. The country added just 194,000 jobs for the month while consensus estimates were calling for an additional 500,000 jobs raised. The September figure was even lower than the August figure which saw 235,000 jobs added. The consecutive misses in jobs growth points to a disturbing trend and could keep the Federal Reserve on hold longer than it wants to be.

 

Whether the Fed actually does begin to taper its monthly security purchases in the months ahead remains a topic of debate. Some data points have pointed to economic strength and recovery while others, such as the jobs data, have pointed the opposite way. Today’s non-farm payrolls data may provide more questions than answers and could set markets up for a period of heightened volatility as the next Fed meeting approaches.

 

Although today’s non-farm payrolls topline didn’t do markets any favors, the report did also contain some positives. The unemployment rate, for example, declined to 4.8%, falling below estimates for a reading of 5.1%. The disappointing numbers for August were also revised higher by 131,000 jobs. Even July was also bumped up, reaching nearly 1.1 million jobs.

 

Wage inflation showed further signs of picking up which may be bullish for gold. September wages, according to the report, ticked higher by .6% or $.19. Rising demand for labor coinciding with the recovery from the pandemic have put upwards pressure on wages. The biggest question facing markets now is whether the Fed will follow through on its plans to begin tapering before the end of the year.

 

Numerous analysts interviewed in the aftermath of the report seem to feel that it was decent enough and that the Fed will announce tapering at its November meeting. Of course, things could change in the meantime and a bad November obs report could also sway Fed votes in the opposite direction.

 

Fow now, the bears are still in control of the daily chart. That control is now by a thread, however, as a month old downtrend has now been negated. The bulls will need to exhibit some strength and exhibit it soon, however, as a lack of upside may encourage the sellers to keep playing the short side of

the market. The $1800 level remains the next near-term target for the bulls. The bears will look to take prices down to the $1700 area before getting excited. With the market now above the $1750 level, the bulls may attempt to rally prices further. Dollar weakness, stronger crude oil and uncertainty over the Fed’s tapering plans may keep the bulls coming back for more. The upside will not really open up unless the bulls are able to take out resistance in the mid 1830s on a closing basis, however. Until then, the market may simply remain sideways awaiting further inputs.

Kicking The Can Down The Road (As Usual)

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Congress has reportedly reached a deal to avoid a debt crisis as the U.S. approaches the point it runs out of cash. Democrat Chuck Schumer announced today that Democrats and Republicans had reached an agreement on raising the debt ceiling by $480 billion. The agreement hikes the government’s borrowing authority until early December at which time a long-term deal must be reached or a stop-gap measure put into place.

 

The removal of the immediate threat to the U.S. fiscal situation is driving a rally in equities today, with the benchmark Dow Jones Industrial Average up by 500 points in mid-morning trade. The gold market is slightly lower today as the threat removal may deter some from buying gold and may fuel desire for higher risk assets such as stocks.

 

The question, however, is whether Congressional leaders will be able to reach a long-term agreement that works before the December deadline. With the debt ceiling already approaching the $30 trillion level, one has to wonder if the government even cares about it at this point. $30 trillion is, after all, a lot of money. Some might even say that the deficit is insurmountable and can only possibly be repaid through currency devaluations or other major methods of action. Whatever the case may be, the U.S. Government certainly has an issue on its hands and that issue will need to be dealt with at some point-the sooner the better.

 

Deficits have become a way of life for the U.S. and many other governments across the globe. These deficits have been a major component of much of the wild market speculation seen in recent years, even decades. Once the bill becomes due things are likely to take a major turn, however, and that turn could rock global financial markets to an extent that has not been seen before.

 

The debt crisis is exactly that: a crisis. When the crisis comes to pass, it is going to hurt. That makes now the ideal time to acquire and build a portfolio of assets that may outperform during such a period. Assets that can not only hold their value but may increase in value are ideal. Assets that can be held in your hand and cannot be manipulated

by the government. Hard assets such as physical gold, silver and other metals may provide relief from the debt crisis once it hits. These assets cannot default, declare bankruptcy or otherwise disappoint their holders. Their value is determined by the laws of supply and demand and cannot be manipulated through central bank magic.

 

The price of gold has been and may continue to be sideways for some time. Current prices may not be seen again, ever, however. Once the market takes off, it could make fresh all-time highs that far exceed current highs. With no upside chart pressure on the metal, it could easily run higher to $3000, $5,000 or even $10,000 per ounce or more in a matter of weeks.

 

Let the government kick the can down the road, but keep the long-term consequences in mind and invest accordingly.

Are Stocks Headed Lower?

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The stock market saw some significant declines on Monday as the new trading week got underway. The question many investors may now be asking is whether October will hold more declines in store or even if a major market crash is imminent. The direction of equities is important for gold, as lower stocks may drive buying in gold and stronger stocks may subtract buyers from the market.

 

Equity markets are, thus far, seeing a very strong rebound on Tuesday. This rally today is to be expected, however, and does not necessarily mean that equity market risks have abated. The Fed’s tapering plans, inflation, Evergrande and more may all keep volatility on the rise this month and the selling pressure on. Some have even suggested that October will see a major market crash-one in which every asset class will decline sharply including Bitcoin and gold. Whatever the case may prove to be, the markets appear headed for some changes that could shake things up substantially. Such a shakeup could make now and the months ahead the ideal time to be watching and buying physical gold.

 

In addition to the market threats mentioned above, investors will also need to pay attention to the debt ceiling. The U.S. is set to run out of cash on October 18th. Without a deal in place beforehand to raise the debt ceiling, the country risks a default. A U.S. default would be its first in history and would have a significant impact on global financial markets. Rising borrowing costs and the threat of recession are two of the possible results from a default, and the effects of these could be long-lasting and severe. With so many other major issues on the table right now, it is difficult to imagine a more challenging time for a debt showdown than now. Hopefully, the U.S. Congress will pass legislation pertaining to the debt ceiling sooner rather than later and avoid a major shakedown of consumer and investor confidence that could arise from waiting until the very last minute.

 

For now, the gold market appears to be comfortably range bound and could stay that way for a significant period of time. As of today, the market is holding support in the $1750 area. The bulls have, however, shown little to no buying interest in recent sessions. With the daily chart now tilted in the bears’ favor, any rallies may be due to short covering rather than fresh buying. This could, in turn, keep any upside price pressure limited.

 

As the bears look to take out support at $1750, their next downside target likely stands around the $1700 level and then $1670. The bulls, on the other hand, need to target previous resistance at $1800. A close above $1800 may restore some of the bulls’ confidence, however, resistance in the mid-1830s remains allusive. Only a breach of the mid-1830s, on a closing basis, may ignite a fresh round of buying that could sustain a move higher.