The gold market is solidly lower in early action Monday after being quite a bit higher earlier in the session. The yellow metal had hit a 3.5 month high before the bears took control today, and the overall trajectory of the market appears positive. The short-term technical advantage seen in the gold market could encourage further chart-based buyers to step in as well, possibly providing some key support for the metal as it looks to retake the $1800 level. Now at $1775 and change, the bulls have some work to do to get the market above this key level on a closing basis.

 

Markets may still be digesting last week’s stronger-than-expected jobs report. The strong jobs data could keep the Fed on its current path, tightening rates aggressively as it goes. This is in sharp contrast to some recent comments from Fed Chief Jerome Powell, who stated the Fed did not want to overtighten and be forced to cut rates quickly. Powell effectively alluded to a slower pace of interest rate hikes, which the markets view as dovish. Powell was also careful to suggest that the Fed will keep its foot on the gas until the job is done and that rates may need to remain elevated for some time to calm inflationary pressures. The dovishness of Powell’s comments boosted gold last week, and any further signs of the Fed taking a pause or even reversing course on rates could send the yellow metal sharply higher.

 

The gold bulls now have the advantage on the daily charts. This could make today’s decline an attractive buying opportunity for longs looking to get into the market. More than likely, however, is that more longs may look to enter the market once it closes above the $1800 level. This level is a key technical test for the market, and the bulls may want to see it hold before getting overly excited.

 

Over the weekend, OPEC did not make any changes to its oil output. The oil cartel elected to leave its collective output unchanged for the time being. Although crude oil prices remain elevated at $82 per barrel, they are not overly elevated and do not appear to be a major source of economic concern at current levels. Likewise, oil does not appear to be much of a factor for gold at current price levels.

 

The gold market has already failed to hold the $1800 level once. If the bulls are unable to launch a more sustainable assault on this key level, the bears could take further control of the market and drive prices lower. This could equate to another failed gold breakout and could frustrate the bulls harshly. If they are able to take out this level in convincing fashion, however, the sky’s the limit on the upside. The market could quickly move back towards previous all-time highs or even beyond. It may all come down to the Fed, however, and what the central bank has planned for early 2023.

Much has been made of the Fed and its aggressive policy tightening in the last several months. Many investors have wondered when, not if, the Fed would send markets a signal that the aggressive hiking may stop and that a pause or even reversal could be in store. Such a signal may have been provided today by Fed Chairman Jerome Powell.

 

Speaking in a speech today at the Brookings Institution, Powell suggested that he does not want to overtighten and then be forced to cut rates quickly. While Powell did say he does not want to cut rates quickly, he did also state that the Fed is slowing down and wants to find that right rate before making any major policy decisions. Powell suggested that the slower pace of rate hikes could come as soon as December. The Fed may be increasingly unlikely to raise rates by 75 points again next month and may be far more likely to hike rates by 50 or even 25 points this time around.

 

Markets have been wondering for months now when the Fed might signal a slowdown in the pace of rate hikes. Acknowledging that the effects of the previous rate hikes may not yet be felt, Powell seems comfortable in taking a wait and see approach. That approach will likely last through the first half of next year, at which time the Fed may reevaluate. If a recession does appear imminent during that time, however, the Fed could change its tune a lot faster.

 

For the time being, markets will have to be happy with the Fed taking a less aggressive approach to policy. And just because Powell does not want to quickly start cutting rates does not mean that he won’t. Investors will now continue to await that magic day when Powell does start cutting rates. The threat of a rate cut in the months ahead has boosted gold sharply Wednesday.

 

Powell did not want to leave markets feeling a rate cut will be seen soon. He made mention of how high rates actually get being more important than the pace at which they get there. He also suggested that restoring price stability may require holding rates at a higher level for longer. Powell said the Fed will stay the course until the job is done.

 

Looking at Powell’s comments really does not shed much new light on what the Fed may do in early 2023. A slowdown in the pace of rate hikes may be just the first of several steps to prepare markets for a rate cut sometime next year or the year after. Powell may not want to risk the Fed’s credibility, and thus may hold rates higher for longer until inflation shows more improvement and eases back towards the Fed’s desired annual target of 2%.

 

This may put gold on a different path than it was on a few weeks ago, but does not appear likely to send the market sharply higher in short order. The bulls need to take out the $1800 level on a closing basis. If able to do so, the path to higher prices may be cleared for the months ahead.

The gold market has been closely linked to the Dollar Index and the crude oil market for some time now. The yellow metal was lower Monday as the dollar moved higher and as crude oil sank. The metal is seeing the opposite effect on Tuesday, however, as the crude oil market is higher and the dollar is sinking. Gold is less than a dollar above the unchanged line, however, and many investors may already be away from the screens as the Thanksgiving Holiday approaches.

 

U.S. Treasury yields are also seeing a downtick today, which may be limiting any selling pressure in gold. Although the key outside markets may be cooperating today, the gold bulls are likely waiting on the Fed and its plans for 2023 before making any significant moves. Investors are also nervously watching the Covid situation in China. The largest Chinese city of Beijing has reportedly been called a “ghost town.” As China continues to battle the virus, it may be forced to implement more lockdowns or other measures. Some analysts have suggested that 20% of the Chinese economy is already being affected by lockdowns. This is especially important because China is the globe’s second-largest economy and it could have a major dampening effect for the global economy.

 

Although market action appears to be on the quiet side today, do not rule out some possible fireworks for tomorrow. Wednesday’s session will feature the most economic data for the week, and some key pieces of data could move markets. Perhaps most important, the minutes from the latest FOMC meeting are due for release in the early afternoon Wednesday. These minutes could provide clues for investors about the Fed’s intentions as the new year gets underway in a few short weeks. It is currently expected that the Fed will hike rates again in December, although they may not hike by another 75 basis points. A 50 or even 25 point hike may be more likely this time around. Investors will pay close attention to the central bank’s commentary following the decision on rates, however, to gauge the Fed’s plans for 2023.

 

If the Fed maintains a hard line and sounds overly hawkish, investors are likely to fret further about the possibility of a recession next year. If the Fed sounds more dovish, however, it could ignite a fire under the stock and gold markets, potentially sending both quite a bit higher in a short period of time. The Fed may hold the keys to gold’s fortunes next year, and a great deal may depend on how the Fed approaches policy in the months ahead.

 

Recent inflation data has pointed to a possible slowing of inflation. It remains unclear, however, whether that slowdown will become a trend or if it is just a one-off. Any further data possibly demonstrating that inflation is slowing would be cheered on by investors and could keep the Fed from continuing in their aggressive hiking.

The gold market is lower in late morning action on Thursday as bearish outside market action takes a toll. Not only are outside markets in a bearish posture for gold today, but some hawkish Fed commentary is also playing a role in gold’s downside. A strong rally in the dollar today combined with significantly weaker crude oil prices is not doing gold any favors. Add to that the hawkish Fed rhetoric today and you have a recipe for lower gold prices.

 

St. Louis Fed President James Bullard said today that he feels at least another 125 basis points of hiking is necessary. That would put the Fed Funds rate at 5-5.25%. Kansas City Fed President Esther George also sounded hawkish today, suggesting that she did not know how to bring down this level of inflation without inflicting significant slowing, possibly even a contraction in the economy to get there. As an increasing amount of discussion on the Fed’s plans is now taking place, now is not a great time for some to lean hawkish and some to lean dovish. A lack of clarity may be the worst case of all, in which investors do not have a strong sense of what the Fed may do or when it may do it.

 

The Fed seems certain to hike again next month. A December rate hike may not be as tall as previous hikes, however, and could come in at 50 or even 25 basis points. Markets do not appear concerned with what the Fed does next month, however, and appear far more focused on what the Fed may or may not do come 2023. If the Fed continues to raise interest rates into next year, the odds of a recession could increase dramatically. If the Fed elects to take a pause, it may be able to avoid a recession but it may not necessarily appease equity investors. If, or rather when, the Fed decides to start easing rates again; stocks, gold, and other assets could skyrocket. It does not seem to be a question  of “if” the Fed will start easing, but rather a question of “when.”

 

The downside in gold being seen Thursday may not just be due to outside markets, but may also be due to gold needing a pullback before being able to continue higher. The market recently broke out of an extended trading range, and as long as the bulls hold the $1700 level the market could be poised for further upside. For now, the bulls will target a close above the $1800 level. The bears will look to produce a close below $1700, pushing gold back into its previous trading range and potentially nullifying the recent upside. A bullish breakout above $1800 could set the stage for a sharp leg higher. That leg could potentially even take the market back toward previous all-time highs or beyond.

 

The long-term bullish thesis for gold remains firmly intact. The outside markets not cooperating today is likely due to the Fed and its rate hikes. Once the Fed decides to change course, however, the dollar and yields could see a tumble. That decline could make the road higher much easier for gold and could fuel a run back to all-time highs in a short period of time.

The gold market is higher by a few dollars per ounce in the early afternoon of Tuesday. The metal had been lower earlier in the day by several dollars, only to bounce back on the word of Russian Missiles being fired into Ukraine, with two of them reportedly traveling into Poland and killing two people. The major data point of the day was the latest reading of the Producer Price Index. The PPI, like CPI, came in under estimates. The 8% reading was below estimates for a reading of 8.3% and may add further credibility to the notion that inflation may now be easing.

 

The previous CPI data had been a major relief for markets. Today’s PPI data will add to that sense of relief. Markets seem to be getting the impression that the worst of the inflation debacle may now be behind us. This is certain to fuel questions about what the Fed may do next month and as 2023 gets started. The Fed will almost certainly still raise rates in December, although at this point a 50-point hike may be far more likely than another 75-point hike. What the Fed does as 2023 gets underway, however, is another matter entirely and could have a major impact on U.S. and global markets.

 

As markets await the Fed and what it may or may not do, they will also be forced to pay attention to other inputs as well. The ongoing war in Ukraine, for example, may become an increasingly important influence on gold and markets. The news that two Russian missiles missed their target today and killed two in Poland could lead to a rise in Russian and Western tensions. While it remains very unlikely the west would get involved in the conflict, the killing of innocent bystanders seen today may draw not lonely criticism but action. With Russian leader Vladimir Putin already discussed the use of nuclear weapons, any escalation in the war could lead to significant risk aversion across markets. This could, in turn, possibly lead to more buying interest in gold for its perceived safety. Because Poland is a member of NATO, action could be seen by NATO members to defend their counterparts.

 

The globe will also watch any fresh developments in the crypto space after the recent FTX liquidity crisis. Cryptos have since stabilized, but it seems that much damage has been done to their reputation as a possible safe haven. Bitcoin remains well below the key $20,000 level, and gold may now not see nearly as much competition from crypto if times get tough.

 

The gold bulls will attempt to take the market over the $1800 in the sessions ahead. The bears will target a close below the breakout point of $1700. If the bulls can produce a close above $1800, the market could be primed for a sustainable run higher that could even see it back near all-time highs before long. If the bears get the market lower for a close below $1700, a fresh wave of selling could be seen, possibly taking the market as low as $1500 before finding willing buyers.