More Profit Taking

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Wednesday morning is seeing more profit-taking in the gold market. The metal is already off the lows of the session, however, down less than $6 per ounce in mid-morning action. The yellow metal may be taking some heat today as the key outside markets have assumed a bearish posture. Crude oil is weaker today while the Dollar Index is stronger. Despite these bearish markets, however, some bulls have already stepped in to buy the dip today, and do not be surprised if gold ends the session in the green rather than the red.

 

The gold market may now be in a holding pattern of sorts until the next FOMC meeting next week. The metal has reacted to the Fed’s commentary in a dovish manner, but the central bank’s commentary can and does change quite frequently. Whether the gold bulls can continue the recent rally may very well depend on what the Fed has to say following its upcoming meeting. It is widely expected that the Fed will raise rates again, although by only 25 basis points this time around. Markets are far more interested in what the Fed has to say about further hikes as 2023 gets rolling. If the Fed strikes a dovish tone in its commentary and outlook, the gold bulls may see that as a green light to drive prices higher. If the Fed sounds more hawkish, however, the bulls could see that as a sign to bail and the market could be sold off heavily.

 

The Fed has already alluded to rates having to remain higher for longer. Just how high remains a big question, as well as for just how long. Some analysts have already suggested the Fed could look to start easing in the second half of the year. Others feel that a pivot by the Fed won’t be seen until sometime in 2024. Either way, markets will be looking forward to the day the Fed signals a reversal. That reversal could also be a primary factor for gold reaching new all-time highs. The market is already within striking distance of previous all-time highs, and a significant catalyst could send the metal back to those levels or beyond.

 

In addition to the Fed and its plans for rates this year, gold may also be affected by the debt ceiling. The ceiling was reached again last week, and the Treasury Department has taken some extraordinary measures to allow the country to keep paying its bills. Once those measures expire, however, there could potentially be big trouble if politicians are unable to reach a deal in time. With the U.S. debt now standing over $31 trillion, many wonder how the nation might even attempt to pay down its debt or if the debt is already unpayable. Whether the debt ceiling is extended or not, the issue of massive debt may keep buyers in the gold market as concerns over an eventual currency debasement or debt default mount.

Gold Hits 9-Month High

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The gold market hit a fresh nine-month high earlier Tuesday before pulling back. The metal is being powered by positive chart structures, safe-haven demand and geopolitical risks as it continues to maintain trade above the $1900 level. Despite having reversed course this morning and now trading about $9 per ounce lower on the session, the path of least resistance for gold remains sideways to higher. The bears have a lot to prove if they want to reverse the market’s course over the long-term. With no clues about a market top having been reached or even close, the bulls will likely continue to buy on any significant dips within the market.

 

As the next FOMC meeting rapidly approaches, markets may get increasingly jittery over what the Fed may or may not do. It is widely expected that the central bank will hike rates again. This hike, however, will likely only be for 25 points rather than 50 or 75. Recent inflation data has pointed to a slowdown in price pressures, although there is still much work that needs to be done. The slowing in the data may give the Fed more wiggle room, however, as to how fast it needs to raise rates to keep inflation from increasing further. With some more room to work with, the Fed may be increasingly likely to take more of a wait-and-see approach to policy.

 

The Fed and monetary policy may be the primary drivers for gold in the months ahead, but they are not the only market catalysts. Several other issues, including sovereign debt, the upcoming Presidential election and the war in Ukraine may also all factor into gold’s fortunes. The political scene in the U.S. may become especially heated as the debt ceiling is being challenged yet again. The U.S. Treasury Department has bought leaders a little bit of time through some extraordinary measures, but those measures will soon expire and the nation could find itself unable to pay its bills if a deal is not struck between the two major political parties.

 

As the war in Ukraine rages on, there have been little to no signs of a slowdown. Worries now have gone from Russia to China as concerns mount that it could potentially look to invade Taiwan sometime soon. A Chinese invasion of Taiwan would almost certainly invite U.S. involvement, and such a scenario could very well lead to the Third World War beginning. As the globe waits to see when Russia may pull out of Ukraine and if China does invade Taiwan, investors are likely to keep gold from falling too far. With so many potential issues in the mix, gold may remain fairly buoyant until more clarity is seen. For the time being, that may keep the path of least resistance in gold higher and could keep willing buyers jumping in on any significant dips.

 

 

Gold Seeing Routine Correction

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The gold market did not do much on Monday. The spot market is lower in mid-afternoon action by less than $1 per ounce. The profit-taking comes as no surprise following the metal hitting an eight-month high last week. Also possibly a factor in today’s market action was a headline in a prominent financial newspaper that suggested the Fed would “ Set a milder course” on rate increases. The author of the article is a well-known reporter recognized for getting Fed members to speak with him directly. The next FOMC meeting is quickly approaching, and the markets are finding themselves questioning the Fed’s plans for the year ahead. Previously, it was widely thought the Fed would maintain its aggressive pace of rate hikes until the job was done. Now, however, inflation data has been showing some slowing that could give the Fed reason to think twice before hiking again aggressively.

 

The next rate hike will likely be only 25 basis points. Of more interest to the markets will be the Fed’s commentary and outlook. If the Fed signals it intends to slow the pace of hikes or even take a pause, gold and risk assets could get a major boost higher. If the Fed signals it plans on staying the course, however, it could be bearish for the metal and for risk assets and could send markets lower.

 

The gold bulls have done a good job in recent weeks taking the market higher. Whether the move up is sustainable is another question, however. The bulls have thus far been able to hold the market above the $1900 level, well above it in fact. If the bulls can maintain their recent bullish posture, the market could see a fresh wave of buyers enter, taking prices to the $2000 level in a short period. If the bears can produce a close below the $1900 level, then a push toward the $1800 level could be seen. To get anything of substance going, the bears need the market below the upside breakout point at $1700.

 

The gold market is highly dependent on the Fed currently and what the central bank has planned for 2023. Any clues provided by the Fed members may go a long way toward giving the market some sustainable fuel to drive it higher or lower. The path of least resistance remains higher for the time being. Any significant dips in gold may be bought aggressively until proven wrong. The gold market may also benefit from some other key factors that could potentially take it higher. These issues include the recent hitting of the debt ceiling, the war in Ukraine, the upcoming U.S. Presidential election, and more. Any of these issues could potentially move the gold market, although the Fed remains the primary catalyst for market movement.

U.S. Debt Ceiling Hit, Now What?

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As expected for some time now, the U.S. hit its debt ceiling today, forcing the Treasury Department to implement extraordinary measures to keep the nation’s bills paid. As the fight over debt rages on, both political parties will look to take advantage of the situation in the weeks ahead. The U.S. debt ceiling is just another dog and pony show that will be utilized by political powers to attempt to sway voters. In all likeliness, some type of agreement will be hammered out sooner rather than later. That agreement will almost certainly again just kick the can down the road, leaving the root cause of the problem for someone else to deal with at another time.

 

The U.S. dent now stands at over $31 trillion. That is $31 trillion dollars, an amount that cannot be fathomed by most individuals. It would reportedly take almost a million years to count to 31 trillion to put the figure into some perspective. With the interest meter always on, how can the U.S. ever possibly repay such a massive amount of debt? The answer to that question could be the key to gold’s long-term fortunes. Most experts believe there is only one way for the country to repay such an amount of debt, and that way does not bode well for the dollar or the economy. Currency debasement is a term that has been thrown around in recent years, oftentimes from individuals who are considered to be “crazy,” “nuts” or otherwise deranged. Those individuals may have the last laugh, however, as the U.S. is rapidly running out of gimmicks to pay its bills on time.

 

A U.S. default on its dent is almost too crazy to consider. The global implications of such a scenario make it almost impossible to even imagine. A default is a legitimate threat, however, that needs to be avoided at all costs. A U.S. default would cause borrowing costs to go through the roof, and could be the first stage of a global recession the likes of which has not been seen before. Not wanting this to happen, the U.S. will likely come up with an alternative solution to keep paying its bills while avoiding worldwide panic. A currency debasement may be the only solution available.

 

Lowering the value of the U.S. Dollar may be good for the government, but it is not so good for you. If every dollar you currently own bought tomorrow only half of what it buys today, your supply of money is basically cut in half. That is exactly what could happen if the U.S. elects to debase the dollar. The currency is already in some serious trouble on the world stage as nations look to move away from it. Its status as the global reserve currency of choice is already under attack as other nations such as China look to get a seat at the global power table. Whatever the case may be, the dollar appears to have some tough times ahead of it. As the dollar declines, so does your purchasing power and your wealth.

More Profit Taking Wednesday

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The gold market is slightly lower in mid-day action Wednesday as short-term traders continue to book profits. Not helping the bulls either is the stronger dollar today and crude oil having backed off its high from earlier in the session. It has been a busy day for economic data, with the latest readings on the Producer Price Index and retail sales both being released. The Producer Price Index was probably the most heavily watched report of the day. It showed inflation easing further, coming in at up 6.2% year-over-year. That was significantly lower than the November report, which showed a rise of 7.3%. It was drastically lower than the March 2022 report which showed a rise of 11.7%. While inflation is still very high and nowhere near the Fed’s desired 2% annual target, it is declining steadily in recent months.

 

The softer inflation data may mean the Fed has done some things right and that its rate hikes are having the desired impact. Much work remains to be done, however, and the Fed is likely to keep hiking rates albeit at a slower pace through the first half of the year. The next rate hike in a couple of weeks will likely see a rise of just 25 basis points compared to the 50 and 75 basis point hikes markets have become accustomed to in recent months. The Fed has said it feels rates may need to remain higher for longer, and it therefore may take a slower approach to get rates to the needed levels.

 

The gold market may remain quite vulnerable to the Fed and any changes it makes in its policy objectives. Further rate hikes appear to be priced into the market already. A surprise larger-than-expected rate hike could throw the bulls off track, however, at least temporarily. Should the Fed elect to quit raising rates or even signal a pending rate reversal, the gold market could skyrocket higher. In the meantime, the trend for gold remains on the upside and that is the path of least resistance. The bulls have held the $1900 level so far Wednesday and their next target is resistance at the $1950 area. The bears need to produce a close below $1800 before getting excited. Until proven otherwise, any significant dips in gold are likely to be aggressively bought.

 

The gold market may find itself staying sideways to slightly higher over the next few months until more is known about the Fed’s plans. Of course, any major inflation data changes could also impact the yellow metal in the meantime. If the bulls can take out the $1950 level on the topside, the metal could be well-positioned to challenge previous all-time highs. A failure to take this level out could be indicative of the rally running out of steam and the market possibly reversing course. Given the current economic and geopolitical landscapes, a reversal seems very unlikely.

A Routine Pullback Thus Far

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The gold market saw some selling pressure on Tuesday as investors returned from the long Martin Luther King Jr. holiday weekend. At lunchtime Tuesday, gold is down by nearly $10 per ounce, but is holding above the key $1900 level. After hitting a fresh nine-month high overnight, gold saw fit to decline during the day session. A moderate decline such as that seen Tuesday is nothing unusual and may even signal health within a market that is in an uptrend as gold is. Some more bad data out of China may also be playing a role today, as Chinese economic growth registered a paltry reading of 3% for 2022. That was the slowest Chinese growth rate since 1976 and may show just how much of an impact Covid has had on China and the world.

 

As the globe’s second-largest economy, China’s growth rate for 2023 will become increasingly important as the world looks to shift back into a high growth mode. If the Chinese economy continues to sputter or if areas of China again become closed due to Covid lockdowns, the outlook for the global economy in the year ahead may deteriorate significantly. Slowing global growth may yet be another factor the Fed will have to consider as it decides whether to continue raising rates as it has done the past year. With concerns of a recession already elevated, the Fed may elect to tread carefully if Chinese growth does not accelerate.

The gold bulls have a 2.5-month uptrend at their backs to help them push the market higher. The bulls will try to target resistance at the $1950 level next. A close produced above this key area may set the stage for a rapid rally higher that could potentially put gold within striking distance of previous all-time highs. The bears have their work cut out for them. The bears must first produce a close below the $1800 level. If able to do so, they would then target the recent upside breakout point at $1700. A close below $1700 could be very bearish for the market, as it may not find much to stop selling before hitting the $1500 level. The bulls are likely to remain in control, however, as hopes for an increasingly dovish Fed may be on the rise.

 

The FOMC meets again in two weeks. The Fed is unlikely to hike as it did previously, however, and a 75 or 50-point hike is unlikely. The central bank will likely raise rates by 25 basis points to keep them rising but not do so in an overly hawkish fashion. The Fed has said that rates may need to remain higher for longer, and it may no longer feel such a rush to get inflation down now that some key inflation data pieces have shown a slowdown in price pressures. On the other hand, if inflation data does show a pick-up in the weeks and months ahead, the Fed may keep raising rates until the terminal rate is above 5.25% or even more. Such rate levels could cause the U.S. economy to enter recession, however, and the Fed will almost certainly try to avoid taking rates to levels high enough to cause a recession.

Gold Holding Above Key $1900 Level

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The gold bulls have taken the metal higher yet again Friday as the spot price exceeded the $1900 level and then some. The bulls are taking advantage of a few key factors to take the market higher. These factors include a continuing cooling of inflation data as well as an improving the University of Michigan consumer sentiment survey. The survey did beat expectations handily on the headline number. More importantly for gold investors, however, the report also showed a decline in inflation expectations. Although inflation expectations remain well above the Fed’s desired 2% annual target, any declines in the data may be met with buying interest in gold as it could give the Fed more wiggle room on slowing the pace of further interest rate hikes.

 

The path of interest rates may be a focal point for investors in 2023. The Fed recently lifted interest rates again but by 50 rather 75 basis points. It is widely expected the next FOMC meeting in a couple of weeks will see another rate lift but by just 25 points this time around. The Fed has made it clear it wants to slow the pace of rate hikes in the months ahead. The Fed also suggested that rates may need to remain higher for longer, so it may not be in as much of a hurry to hike. The big question for gold investors and the financial marketplace, in general, is not really how much the Fed will end up hiking, but rather when it will start cutting rates again. It is currently expected the Fed will start easing again in late 2023 or early 2024.

 

Once the Fed signals easing is on the horizon, it could fuel a powerful rally in stocks and gold. The question becomes then whether the Fed will be able to avoid putting the economy into a recession. There have already been some troubling signs of recession, such as the yield curve inversion, but they do not necessarily mean that a recession is imminent. If the Fed elects to start easing sooner rather than later, a recession may be avoided altogether.

 

In the meantime, the gold bulls will continue to try to take the market higher. If able to hold the $1900 level on a closing basis, the bulls may have set up a path to higher prices that could even see a challenge of previous all-time highs in the months ahead. If the Fed switches to a dovish approach to policy, look out. The yellow metal could take off and enter fresh all-time high territory rapidly and could greatly exceed previous highs. Numerous bullish factors may keep gold elevated outside of interest rates. U.S. and global debt, inflation, dollar weakness, and a general mistrust of governments may all keep investors turning to the yellow metal.

 

The gold bulls must hold the $1900 level now on a closing basis. Doing so may attract further buying interest that could stretch the metal’s upside in the days ahead. The bears have their work cut out for them. They need to produce a close below $1800 to get the bearish camp excited.

 

Is Now The Time To Own Gold?

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Billionaire investor Jeffrey Gundlach thinks so. The Doubleline Capital CEO believes now is the time to get into the yellow metal, as numerous key issues may soon come to a head. He cited last year’s non-dollar performance in gold and how gold has now started to perform in dollar terms as well. Gundlach discussed how gold spent much of the past two and a half years moving sideways but is now back above its 200-day moving average as the dollar weakens. Gundlach is of the opinion that a weaker dollar will give gold a boost this year and that the currency is unlikely to revisit the 115 area seen in recent months. Gundlach also cited the yield curve as a “screaming recession” due to the Fed’s aggressive rate hikes in the second half of 2022. That may be just one of several indicators pointing to a recession in the year ahead.

 

The inversion between three-month bills and ten-year notes has not been this much since the early 1980s. The inversion did again come close to current levels in 1999/2000 and was then followed by a nasty recession. That recession occurred following a stock market that had become grossly overvalued. One could certainly make the argument that stock markets are now just as, if not even more, overvalued as then and that a recession could be around the corner.

 

Gunlach seems to also feel that inflation could even go negative in 2023. If the Fed is able to get inflation back to the 2% level, there is no reason to assume it will just stop there on a dime. Inflation could very well overshoot the target and swing into negative territory before finding a more comfortable long-term level. He also believes the Fed will fail to get rates above the 5% level and will start cutting before 2023 is out.

 

The Outlook for the Fed and monetary policy is certainly something markets will remain focused on as the new year gets rolling. The Fed recently raised rates again, but by 50 points this time instead of the 75 points it had raised rates for several consecutive prior meetings. The Fed could continue in this approach for the first half of 2023, raising rates by 50 or even 25 points at a clip. The Fed is not in a hurry to begin easing rates again and may be careful not to overshoot and put the economy into recession. A recession could already be a done deal, however, as some key data points may indicate trouble ahead for the economy.

 

The gold market may remain sideways to higher until more clarity is seen from the Fed. The bulls will target the $1900 level, possibly in the days ahead, as the next major resistance area. The bears will look to produce a close first below the $1800 level, and then may try to target the upside breakout area at $1700.

Gold Higher As Bulls Following Through

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The gold market is higher in action on Tuesday as the bulls look to continue the recent ascent in price. The metal is higher by a few bucks per ounce today, currently sitting just above the $1875 level. The bulls are well within striking distance of key resistance at the $1900 level and could look to test this area this week or next. A close above $1900 could give the bulls needed ammunition to mount a sustained rally higher that could eventually see the market test previous all-time highs. A failure at this level could prove equally bearish, however, and could give the bears reason to sell more aggressively.

 

Famed economics professor Nouriel Roubini today said that he is expecting a rate of return in gold of 10% per year for the next five years. Roubini cited several factors for this outlook, including wars, inflation, a demographic “time bomb,” debt crises and more. He referred to ten mega threats that are hurtling towards the world and that could send the price of gold significantly higher. Roubini did mention inflation, stagflation and de-dollarization as being the primary drivers of higher gold in the years ahead. He cited the dollar as being weaponized and suggested that the only asset that could not be used by the U.S. or West for sanctions is gold.

 

The world is full of tensions already, and these tensions could mount in the year or years ahead. A Chinese invasion of Taiwan, for example, could greatly heighten tensions between the U.S. and China. The ongoing war in Ukraine may also keep inflation floating around and could also increase global tensions. China, Russia, Iran and others may challenge the U.S. and Europe for global dominance in the coming years. As they do, the importance of gold is likely to become all too clear-especially for those that do not own any of it.

 

There is also, of course, the Fed and what it decides to do this year regarding monetary policy. The Fed recently raised rates by 50, rather than 75, basis points. The central bank may continue to hike rates, albeit at a smaller clip, as it has suggested rates may need to remain higher for longer. To get the job done on inflation, however, Roubini feels rates would need to exceed six percent. The Fed is extremely unlikely to approach this level, however, as a six percent interest rate would basically ensure a severe recession in the U.S, and possibly elsewhere. The Fed is far more likely to raise rates a couple more times in small increments before announcing it will take a pause or even reverse course.

 

Should the Fed bail out early on its rate hiking game plan, gold and other assets could skyrocket higher. The next several months will provide markets with more clues about the Fed’s intentions. Until then, the path of least resistance for gold remains higher.

Gold Gains Ground As Dollar Declines

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The gold market was stronger on Monday as the bulls took advantage of the weakness in the dollar. Stronger crude oil prices also gave gold a boost as the yellow metal hit a fresh seven-month high. A bullish chart posture is also helping gold today as more and more momentum traders and short-term players enter the market on the long side. Appetite for risk is a little keener today as investors digest Friday’s goldilocks jobs report. The non-farm payroll data suggested that the economy may not, in fact, enter a recession this year but could, rather, find a soft landing. The report may also give the Fed something to think about before raising rates again as it did not show the necessity to raise rates aggressively.

 

Investors are also feeling better about China and the opening up of the country following months of Covid closures. As China reopens its borders, prospects for the global economy in 2023 may improve significantly. This improved economic outlook could mean increased demand for metals and higher potential prices. Stocks were firmly higher for much of the day before decking rapidly in afternoon trade. The S&P 500 and Nasdaq have held into gains in late afternoon trade. The Dow has declined firmly into negative territory, however, down by some 60 points in the final hour of trade.

 

Monday’s gains have put gold firmly within striking distance of the next key technical barrier at $1900. With spot gold prices now over $1870, the market is within a day’s upside of reaching and testing this key upside level. If the bulls are able to produce a close above $1900, the market may find more buyers jumping in and some ongoing upside. A failure by the bulls to take this level out, could, however, set the stage for a downdraft in the market. The bears need to produce a close below the $1800 level to get anything going. If able to do so, they would then target the upside breakout level at $1700. A breakdown below this level could negate recent bullishness and could see the metal decline all the way to $1500 or so before finding more solid footing.

 

The gold market will likely find itself in a sideways pattern for some time until more is known about the Fed’s intentions for the year ahead. The Fed has already signaled it intends to take a slower approach to rate hikes, but how much slower is debatable. The Fed has also stated that rates may need to remain higher for longer. Exactly how high and for how long is also a question being considered by investors. With the terminal rate likely to exceed the 5% level this year, markets are wondering how long such a rate may be necessary and tolerated by markets. If the risk of recession increases or remains intact, the Fed may want to be especially careful about how high it raises rates and how long it leaves them there. The gold market will be listening and may adjust its path based on any clues or commentary provided by the central bank.