Data Seen As Bullish for Gold

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The gold bulls are putting some significant distance between prices and the $1800 level today. Following the release of the latest reading on second quarter GDP, which as well below expectations, the bulls have given themselves the green light to buy. The yellow metal now sits at over $1830 per ounce and could be gearing up for a more sustained attempt higher.

 

The weaker than expected GDP data may serve to underscore the Fed and its desire to hold policy steady. Although the headline data was a bi of a disappointment, it was not bad. With a savings rate of nearly 11%, consumers still have ample capital laying around that could be out to work, driving growth higher and sustaining the economic recovery.

 

As investors and markets sift through today’s GDP data, they are also still digesting yesterday’s Fed meeting announcement and commentary. Although the initial commentary from the central bank may have been viewed as being slightly less dovish, by the end of the day the markets appeared to be pleased with the Fed and its remarks. Even if the Fed does begin to taper its bond purchases later this year, it seems to be in no hurry at all to begin raising interest rates. The central bank’s willingness for accommodation may last several more years, in fact, and could keep pressure on the Dollar Index along the way. The dollar is seeing some selling activity today as it moves lower while

yields are stable at the 1.27% area.

 

In addition to the weaker GDP figures, markets may also be reacting today to slower housing data. The latest figures on pending home sales showed a decline of 1.9% in June. This drop may have caught the markets off-guard as consensus estimates were looking for a gain of .3%. The decline in pending home sales may be due in large part to the rapid rise in home prices that has been seen in recent months. Some buyers may be electing to take a wait and see approach rather than risk overpaying for a home. As record high prices weigh on consumer sentiment, it could eventually lead to a market reversal as the market slows further. The housing sector is watched closely and could affect the Fed and its decision making. If the sector slows further, it may pave the way for the Fed to remain highly accommodating which could keep stocks moving higher and the dollar moving lower. Any ongoing continuation of easy monetary policies could keep the gold bulls on the offensive as well and could set the stage for a challenge of previous all-time highs in the months ahead.

 

A move beyond previous all-time highs on a closing basis could drive further buying in gold that could take the market sharply higher in little time. With no upside chart resistance above the highs, any substantial buying activity could fuel a rapid run higher in value that could see the yellow metal hit $3000 or even $5000 per ounce in short order.

Fed To Keep Foot To Pedal For Now

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The U.S. Federal Reserve announced today that it plans to keep its foot on the gas pedal, maintaining its current rate policy along with its monthly security purchases. The central bank did, however, allude to tapering back its support in the months ahead if the economy continues to strengthen.

 

The Fed will keep the key interest rate at 0-.25% while it also continues to purchase $120 billion per month in securities. The Fed’s post meeting announcement, however, suggested the central bank could potentially look to dial back stimulus measures sooner than anticipated if the economy shows further improvement. The Fed stated it believes the economy has made improvements towards its employment and price stability goals, and that it would continue to assess this progress in the meetings ahead.

 

Central bankers will be gathering in a few weeks at the annual symposium held in Jackson Hole, Wyoming. It is expected that at this meeting, the Fed may provide further clarity on its plans and the timing thereof. The Fed’s commentary today could be viewed as the first shot across the bow for the central bank scaling back its monthly bond purchases, or QE. The central bank talked but promised nothing, allowing it to maintain its flexibility concerning policy if things were to change in the weeks or months ahead.

 

The ongoing viral pandemic is likely the biggest influence on the Fed. The Delta variant of the virus has been spreading quickly and has caused concern among investors. Vaccination progress may alleviate some of the concerns, however, the virus remains a very potent economic player.

 

The Fed is not only having to battle the virus, but is also having to contend with higher inflation. The threat of rising price pressures could force the Fed to make changes to monetary policy earlier than hoped for. If the Fed feels the need to raise rates earlier than expected, it could have serious consequences for the global economic recovery. The next several months could be very tedious for central bankers as markets could see rising volatility and selling enter the picture.

 

The gold market is back firmly above the $1800 level in late afternoon trade Wednesday. The market appears to not be paying much attention to the Fed commentary as the central bank did not announce anything new. The bulls may be seeing this as a green light to buy, however, as the Fed appears to want to keep policy steady. The next few trading sessions will tell us how the bulls feel following the Fed and if there are any major concerns over premature Fed action. The gold bulls will need to put some distance between current prices and the $1800 level in order to alleviate near-term vulnerability. A breakdown below this level in the days ahead could potentially signal a larger breakdown on the horizon and could send the bulls scrambling for the exits.

 

Against the current backdrop of heightened inflation, easy monetary policies and dollar weakness, it may be difficult for the bears to stage a market assault sufficient to take prices below the recent trading range. The bulls will need to step up soon, however, in order to avoid a test of the range bottom.

Look Out Below

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The Fed will be forced at some point to raise interest rates. When the central bank does, it could become a crisis of mega proportions as the amount of money required to service the nation’s massive debt equals nearly one third of the country’s annual budget.

 

Markets are awaiting the Fed meeting this week and looking forward to hearing commentary from Chairman Jerome Powell following the decision on Wednesday. Rising inflation worries, a potential economic slowdown and the resurgence of the viral pandemic are just a few of the issues at hand the Fed must contend with. The central bank may now find itself in an impossible situation, however, and markets may scream bloody murder when the Fed finally decides to take its foot off the gas pedal.

 

The primary risk of the Fed electing to hike interest rates is that the changes will be made on the short end of the curve, but will also affect costs which will become unaffordable. The argument could be made for the U.S. issuing longer-term bonds, possibly 100 or even 500 year bonds, but

it is not. The focus on refinancing on the short end of the curve will eventually lead to a crisis as interest costs rise and become unsustainable.

 

Rather than suddenly deciding to begin hiking interest rates, however, the Fed may be more likely to announce a tapering of its monthly security purchases, or QE. The Fed is still buying mortgage-backed securities, and that is an asset class that could be the first to be cut. The housing market is on fire right now, so one has to ask the question of why the Fed feels the need to juice that market.

 

Whichever way the Fed decides to go, it will likely not be pretty. The stock market has been making fresh all-time highs for some time now, arguably on the back of artificially low interest rates and QE. Once the central bank removes the punchbowl, it is difficult to say how markets may react but the possibility of a large meltdown exists. Given the run up in equity markets over the last several years, the decline in stocks could be swift and severe, possibly even nastier than the drop seen in 2008-2009.

 

A sharp decline in equity markets could set the stage for sharply higher gold as investors seek out alternatives. Against the current backdrop of economic and geopolitical challenges, a weaker dollar and the viral pandemic, investors may become increasingly interested in asset classes with a reputation of reliability. With its long history as a reliable store of wealth and protector of value, investors may find no better alternative to turn to than gold.

 

The countdown to action by the Fed has already begun. Some Fed members have already suggested the central bank begin tapering its asset purchases sooner rather than later, and calls for the Fed to begin hiking rates may increase as inflationary pressures mount further. The next several months could see increasing market volatility as investors attempt to figure out the Fed’s plans, and that volatility could lead many market participants into the gold market.

 

The Fed’s actions may not only affect stocks and other markets, but may also put pressure on the dollar as well. Dollar weakness is a major factor for the gold market, and any further downside in the greenback could keep buying interest in gold elevated.

Holding at $1800

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The gold market is sagging a bit as the new trading week gets underway. The gold price has now sunk below the key $1800 level and could attract further selling if it closes below this important threshold. The yellow metal is now dealing with a variety of issues that could affect its price in the months ahead.

 

The Federal reserve is a major issue for the gold market and a major cause for concern for many investors. The Fed is now being forced to deal with not only the threat of rising inflation, but also a resurgence of the viral pandemic that has affected the globe significantly for the last two years. Add to this a faltering global supply chain and the world’s economy could be headed for tough times.

 

The Coronavirus Delta variant has taken the globe by storm and is spreading even faster than the initial virus did. The spread of the Delta variant further complicates an already-challenging time for the Fed. The meeting of the Fed this week may very well not be as rosy as the meeting that took place in June as the central bank may be forced to acknowledge its battles with inflation and slower growth.

 

The Fed will issue a fresh policy statement on Wednesday afternoon followed by a press conference with Chairman Jerome Powell. The leader of the Fed may try to convey that the central bank will need to find a balance between supporting the global recovery while also keeping an eye open for the risks associated with doing so. This could mean that the Fed is likely to maintain its current policy stance despite any further climb in price pressures.

 

A lot of issues have come to light since the last Fed meeting, and the viral pandemic has the potential to shake the global economy again. With the potential effects of the variant on the public health crises, the Fed and other central banks may have to simply keep their feet on the gas pedal, maintaining the status quo for the time being. If the Fed and other central banks do elect to maintain currency policies, the gold market could potentially see aggressive buying as the threat of inflation could also spike higher. A more hawkish Fed, on the other hand, could send the price of gold sharply lower from recent levels, possibly even allowing the bears to test the $1600 area on the downside. A breakdown below the $1600 level on a closing basis could potentially see a much more significant and powerful move lower.

 

The next several months could determine the near-term direction of gold as the world looks to overcome the challenges of the viral pandemic and as central banks maintain policies designed to help it do so. The gold bulls may, however, require a fresh bullish catalyst to take prices higher again and challenge previous all-time highs. Until a breakout or breakdown is seen, the market appears to have found some comfort in the recent trading range.

Inflation Chatter

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Inflation is the talk of the town today and has been so for months now. As Federal Reserve Chairman Jerome Powell testifies before Congress today on the state of monetary policy and the economy, investors are likely to ;parse every word from the Chairman’s mouth looking for further clues on policy and potential tapering.

 

Powell has suggested that tapering remains some time off in his commentary to Congress. The Fed appears set to continue its current path of ultra-low interest rates and monthly security purchases for as long as it is able to.

 

Powell leaning on the easy side of the ledger has already given gold a boost today. The yellow metal is near the day’s highs and could make fresh daily highs before the day session concludes.

 

The most recent Consumer Price Index reading was hot, in fact it was the highest reading since 2008. The Producer Price Index, released today, also showed rising price pressures as the gauge saw a rise of 1% from May. Consensus estimates were looking for a rise of .6%. The hotter PPI data today had little to no impact on markets, however, as higher inflation figures are no longer a surprise but may be expected.

 

The gold market has seen some selling pressure in recent weeks as expectations have shifted a bit on monetary policy. With some Fed members leaning towards tapering sooner rather than later, Fed-induced volatility may see a significant rise in the weeks ahead. Any indications that the central bank could begin scaling back earlier than currently anticipated could fuel some sharp selling in stocks and gold. Despite Powell’s remarks today, this issue will likely become a major market influence in the months ahead, either driving a further stock market rally or derailing it.

 

As the Fed debates its course of action for the months and even years ahead, markets may be forced to turn their attention elsewhere. Hotter inflation, a stock reversal and geopolitical issues may all be areas of focus as the gold bulls seek out a fresh catalyst.

 

Whatever the next bullish catalyst may be, the gold bulls may have plenty of clear room ahead on the upside to sail. With little to no upside chart resistance there may be little, if anything, to contain the bulls once a breakout gets going to the upside.  Momentum players, technical traders and more may all look to jump on the bandwagon should gold provide a clear buy signal on the upside.

 

For the time being, the market appears to have found some balance as it trades above the $1800 level. The bulls have plenty of work remaining, however, as they will need to show a significant push above the $1800 level to attract further buyers. Resistance in the $1840 to $1850 area may be the next key upside target for the bulls, while the bears will look to take prices back below the $1800 level, eventually targeting the $1600 region.

Selling Pressure

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The gold market is seeing some solid selling pressure in early Monday action. Bearish outside markets are likely a factor as the dollar is higher and crude oil is lower. With little economic data out today, investors may focus on outside market action to make decisions in metals.

 

The next several sessions could be critical for gold, as the bulls and bears are now on a level playing field from a technical standpoint. As the next wave of momentum may be determined this week or next, market participants will be on the lookout for any clues about key issues such as monetary policy or inflation.

The Federal Reserve has been dropping some significant hints it could elect to begin tapering much sooner than expected. Despite the central bank hinting at tapering, however, many have serious doubts the Fed will begin this year. More than likely, the central bank could begin tapering its mortgage-backed security purchases of $40 billion per month next February or March. The Fed is likely to continue to buy assets on a monthly basis, albeit at a slowing pace, until some time next year.   The potential for the Fed to reverse course and do so has not yet stung the gold market. It has the potential to do so, however, and may act as a form of upside resistance in the months ahead. It appears the Fed is attempting to avoid a repeat of the “taper tantrum” seen several years ago during a similar situation.

 

The Fed will make its decision on the economy and how things continue to respond in the post-pandemic era. The recent pace of new job growth has been arguably strong, although there have been some bumps in the road. The recent spur of higher inflation is currently thought to be transitory. As of right now, the Fed does not appear to be overly concerned about rising price pressures and seems to have no plans to speed up its tapering due to inflation. That could change quickly, however, if key inflation metrics rise further.

 

The gold market may need to bide its time for an extended period. As market participants look to the Fed for clues about its intentions, there is likely to be considerable confusion that comes along the way as well. While this may prevent a total collapse in the gold market, it is not likely to fuel any major upside, either. For now, the bulls will be forced to hang their hats on rising debt, inflation, easy money policies and the potential for a stock reversal.

 

Fed Chairman Jerome Powell is scheduled to testify this Wednesday in his semi-annual monetary policy testimony to Congress. Powell could very well provide strong evidence that the Fed could announce a tapering soon, setting the stage for a long runway of asset purchase tapering that could begin as soon as this year. Some analysts, however, believe it to be very unlikely that any global central banks turn more hawkish in the near-term. The ongoing viral pandemic, weaker economic data and other factors could all keep central banks standing pat for the time being. Such a scenario could be viewed as bullish for gold, although the market may now require a fresh bullish catalyst to make the jump higher and challenge previous all-time highs.

Shifting Sentiment

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Following the worst June in several years, the gold market is attempting to gain some positive traction while the market stabilizes itself after recent selling pressure. According to the CFTC, hedge funds and large market participants remain bearish the market. Sentiment is beginning to shift, however, and the tide could soon turn for the bulls.

 

As bearish gold bets mount further, the market could also see increasing risk of a major short squeeze. A push above the metal’s 100-day moving average and resistance in the $1800 region could set the stage for a major upside push as shorts may scramble and look to cover their positions. The risk of a short squeeze, combined with some increasing bullish momentum, could also fuel a rally that could take gold firmly above near-term resistance while attracting more buyers into the market.

 

In other news, fresh Basel III guidelines could also become an increasingly bullish factor for gold in the months ahead. With new Basel rules taking effect now, gold is as good as cash on a bank’s balance sheet and that may make it more attractive for banks to increase their holdings. As these large market participants look to increase their allocations of gold, prices could see a steady rise that may also be fueled by retail investors playing “catch up” to the big boys.

 

Central bank activity in the gold market has already begun to run higher. Serbia and Thailand have already added more gold to their holdings, while the Central Bank of Ghana has announced its intent to purchase more bullion. These central bank purchases come at a time when inflationary pressures are on the rise and dominating much of the financial media and as central banks maintain easy money policies as the economy recovers from the viral pandemic. For central banks looking to diversify their portfolios, gold may be the best instrument outside of the dollar without choosing another currency.

 

Stocks remain near all-time highs and could hold the keys to a major, sustainable rally in gold. If equity markets continue to pace higher, the gold market may see weakening demand and the shorts could take over the charts, forcing prices lower into the $1600s or even lower. If the equity markets do begin to show signs of a top, however, or if a major sell-off takes place, investors may turn to gold as an alternative asset class and the market could see heavy, sustained buying that could propel it to fresh all-time highs.

 

As with any market and type of investment, patience is key and the patient gold investor may be substantially rewarded when the time comes. Despite recent selling and weakness, the gold market still has a variety of major economic and geopolitical factors working in its favor. These issues could send gold sharply higher, with $300 per ounce acting as an initial stop before a run towards $5000 per ounce could be seen.

With little reason for gold to move drastically lower from recent levels and a lot of reasons for gold to move sharply higher, the market may now present an excellent long-term opportunity for the patient investor with a favorable risk to reward ratio.

Fed’s Hawkish Comments

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The gold market is seeing some corrective price bouncing following a recent sell-off that took the metal back below the $1800 level. As the ongoing market buzz continues to be worries over rising inflation, investors are still digesting last week’s more hawkish commentary from the Federal Reserve. The Fed’s hawkish comments were likely a main catalyst for the massive selling seen in gold last week.

 

Numerous markets and indicators are pointing to higher inflation down the road, although the benchmark 10-year treasury yield is not following suit today. The 10-year is now yielding 1.43%, a reading that is lower than the yield seen before the Fed’s remarks last week. Although the note may be giving investors a confusing clue, declining yields do not necessarily mean something is amiss. Yields could, in fact, continue their multi-week decline even if inflation continues to move higher.

 

In other pertinent news, the price of Bitcoin dropped by some 10% after China said that banks and payment institutions may not provide payment services for transactions involving cryptocurrencies. The latest move from China is seen as a big threat to Bitcoin and could keep any rallies under wraps as the currency looks to rebound from recent selling pressure that saw its value cut by nearly half.

 

The more that Bitcoin and other cryptos pull back, the better it may be for gold, however. The cryptos had been attaining a reputation as a store of value and competitor to gold in recent months. That competition may be anything but, however, after Bitcoin again demonstrated significant market volatility. Although Bitcoin and cryptos may feature some of the same positives as gold, they do not have the history nor the world recognition that gold has a store of value and protector of wealth. Gold has built such a reputation after hundreds of years of acting as such, while cryptos have only been around for a few years now. Gold may lack the upside price potential of cryptos, however, many who buy gold are not buying it for upside but rather as a hedge. This may make crypto’s upside potential irrelevant when compared to gold.

 

Despite Monday’s corrective price bounce in early am trade, the bears now have complete control of the daily price chart. Recent selling has seen proces decline well below the market’s 200-day moving average and the trend remains lower. Not only that, but prices have also dipped firmly below some key support levels, including the $1900 area. The bears may now target the $1700 level as their next conquest, while the bulls will need to first take out $1850. A close above $1850 could set the stage for the bulls to rechallenge the $1900 level.

 

Although gold was hit hard by the Federal Reserve commentary and hawkishness last week, the effects of that commentary are unlikely to last long-term. The Fed has not yet faced a real test, and the central bank may talk all it wants until such time as a test is faced. Last week’s commentary may prove to be nothing more than Fed “talk,” and the central bank may decide to stay the course in fear of upsetting the markets and fueling volatility.

Selling Pressure to Start

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The gold market is under some decent selling pressure Monday as a lack of risk aversion takes a toll on the bulls. The market may very well be running out of gas as some have suggested, although any significant dips in the price of gold may be viewed as a buying opportunity.

 

Recent data from the Commodity Futures Trading Commission (CFTC) suggests that hedge funds may be losing patience with the yellow metal. The metal’s failure to break out above the $1900 level on this run has likely fueled some profit taking among hedge funds and large market participants. This profit taking could take several days or more to work itself out, keeping the metal on the defensive for several sessions or longer.

 

Following multiple months of gains to the upside, the market may need some back and forth consolidation before being able to make a sustainable run higher above resistance at $1900. This consolidation period could be short as in a few days or it could go on for a significant period of time.

 

Despite gold’s lack of upside follow through in recent trade, it may be tough for traders and investors to bet on the short side. Rising inflation, a Fed happy to stand pat and other issues may all keep interest in gold on the bullish side of the ledger.

 

Data released today from the Federal Reserve suggests that inflation may become more of a long-term issue than the  central bank believes. Jerome Powell has suggested over and over that rising inflationary pressures are likely transitory as the economy continues to recover from the viral pandemic. The release of the Fed’s May consumer expectation survey today seemed to highlight the inflation threat, calling for a significant rise in prices over the next several years. That price rise, if seen, may keep bullish interest in gold elevated for the foreseeable future and may prevent the market from seeing any significant declines.

 

In addition to the threat of inflation, markets will also pay close attention to equities. The S&P 500 is just off a record high, and there appears to be little standing in the way of even higher stocks in the months ahead. A rising stock market may provide a roadblock to higher gold prices as investors chase equity returns and succumb to the fear of missing out. The higher the equity market climbs, however, the greater the eventual fall may be. Once stocks fall out of favor with investors, they may decide to put that capital to work in precious metals, fueling an eventual rise that could see gold move well beyond its existing all-time highs.

 

The key data point for this week will be the conclusion of the Fed meeting taking place Tuesday and Wednesday. The markets are not expecting anyweek ahead changes to policy at the end of this meeting. Investors will pay close attention, however, to the central bank’s commentary and outlook. The Fed has already suggested it may look to set a timetable for a reduction in its bond buying program (QE) and more could be announced concerning those plans on Wednesday.

 

The bulls still maintain control of gold on the daily chart, although that contro, is fading fast. The bullish camp will target a solid close above the $1900 level to attract more buyers, while the bears will look to take prices down to support in the $1810 region.

Vulnerable to Selling Pressure?

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The gold market started the trading week off on the right foot. Prices, however, were held below the key $1900 level as the bulls did not show enough force Monday to push past this resistance area. Although Monday saw bargain hunters step into the market to buy the dip, a lack of risk aversion may keep any gains limited and the market vulnerable to selling pressure.

 

Monday is a quiet day data-wise, but the markets will focus their attention on more data being released Tuesday and with the latest inflation data in the Consumer Price Index due for release Thursday. The topic of inflation has become a major market mover in recent months, and any surprises in this week’s data has the potential to send stocks sharply lower or higher. The consensus estimates for CPI are looking for a rise of .8% with a .4% rise in the core reading (minus food and energy). Any readings above these levels could send investors running for the exits and headed into perceived inflationary hedges such as gold bullion.

 

Recent data from the Commodity Futures Trading Commission (CFTC) showed that hedge funds and large market participants continue their bullish positioning in gold. The positive momentum may be weakening, however, as buying interest has dipped significantly since that seen in April and May. That weaker interest is likely due in no small part to the fact that prices are higher by over $200 per ounce. Much, if not all, of the initial buying demand may have now been met. This could leave the market in search of a fresh catalyst to continue the rally.

 

The next page turner for gold could come in several forms. A further rise in inflation, for example, could fuel fresh buying in the yellow metal that could force a challenge of previous all-time highs or beyond. If the stock market were to reverse course and trend lower, equity weakness could also drive investors to seek out alternatives in which case gold may benefit. Any other issue that fuels risk aversion could also set the stage for a gold rally, and any upside in the yellow metal could be met with increased buying as momentum and trend traders climb onboard for the ride.

 

Despite some drying up of fresh gold buying, the bulls still maintain firm control on the daily chart. The uptrend has been in place over two months and that trend higher may keep bargain hunters on the lookout for any dips worth buying. The bulls will likely target the June highs near $1920 per ounce as a next stop and a close above this level may attract a fresh round of buyers. The bears will try to force prices back down below support at the $1800 level. A close below $1800 could fuel further selling in the market and a significant, fresh leg lower in price.

The week ahead could see some rising volatility in the gold market and could provide important clues about the market’s intentions.