The gold market is higher on Friday to cap off an interesting trading week. The yellow metal is up by nearly $12 per ounce in mid-afternoon action and is rapidly approaching the $1800 level. The metal broke out of its recent trading range following the latest FOMC meeting and thus far has not looked back. If the bulls are able to retake the $1800 level, look out, as the market could go quite a bit higher in short order.

 

Although the recent FOMC meeting was a bit market-moving, it was this week’s slower CPI data that has markets on the move. The latest reading on price pressures registered a rise of 7.7% from the period one year ago. That reading, while still high, is well below consensus estimates for a rise of 8.2%. The drop in inflation could mean that the Fed’s rate hikes are actually chipping away at inflation and making a dent. Markets felt a sudden and significant sense of relief upon the release of the data. Now, questions may arise as to what the Fed may do even as soon as next month. The biggest question, however, is how the Fed may approach policy as 2023 gets underway.

 

Also affecting gold this week was the meltdown seen in crypto markets. The liquidity crisis at FTX sent shockwaves through the sector. Crypto investors may now be more concerned about their capital than they were earlier in the year. Cryptocurrency prices took a major hit on the debacle, and leader Bitcoin is now well below the $20k level once again. The importance of the crypto meltdown for gold is significant. Bitcoin and other digital currencies had been viewed as a potential substitute or competitor to gold for safe haven buyers. That no longer seems to be the case, however, as investors rapidly fled the cryptocurrencies and turned to gold. The metal’s place as the #1 perceived safe haven seems quite intact at this point. Cryptos or other assets are very unlikely to pose any legitimate threat to gold’s status anytime soon.

 

The slowdown in inflation could be due to a variety of factors. The question is not what may have caused it, but whether it will stay around. If inflation begins to trend lower, the Fed may have far more flexibility when it comes to policy and interest rates. If the Fed elects to take a pause on its rate hikes, it would likely be very bullish for gold as the dollar and treasury yields would likely decline. Should the Fed at some point decide to start easing rates again, the sky will become the limit for gold.

 

In the meantime,  the bulls will target a close above the key $1800 level. The bears will try to take prices back below the $1700 breakout point. After this week’s gains, the market may need to do some back and filling before further upside is seen.

The gold market is sharply higher at midday Tuesday as a combination of factors drive buying in the metal. The market is seeing some benefit from short-covering, bargain hunting, and risk aversion as the crypto markets are sold off today. One crypto exchange has reportedly halted withdrawals today, and that has spooked investors into buying gold and silver today as tensions rise. According to the World Gold Council, gold has risen more than half the time over six months following the midterm elections. This time may prove to be no different, especially if the Fed does decide to reverse course on rate hikes in the months ahead.

 

Today is midterm election day in the U.S. The majority of people seem to believe the Democrats will lose the House and possibly the Senate as well. Any Republican victory today may make it harder for policies to be enacted in the next two years, effectively creating a sort of policy gridlock. Such a scenario could potentially boost the gold market as it may drive investors into its perceived safety. The unknown election results may also be lending gold some support today.

 

In other news, the Covid-19 virus remains a huge factor in global growth. China just reported 7500 new cases of the virus yesterday, and fears of additional lockdowns are on the rise. As the globe’s second-largest economy, any lockdowns in China can potentially crimp or even halt the production of many products. This lower production can slow the global economy tremendously, possibly even putting it into a recession.

 

Global markets will also continue to pay close attention to rising interest rates. In the U.S., higher yields and a stronger dollar have both been major roadblocks to higher gold. These may remain elevated as long as the Fed keeps its foot on the gas. If the Fed takes a pause or starts easing rates in early 2023, however, the dollar and treasury yields may both deflate quickly, possibly paving the way for sharply higher gold prices.

 

After spending many weeks in a range between the $1600 and $1700 levels, gold has finally broken out to the upside. This could mean that follow-through buying may be seen in the days ahead and that the market may now begin to trend higher instead of lower. Today’s breakout could be the beginning stage of a sustained move higher in gold. The bulls will need to keep buying, however, as the market may remain vulnerable to a rapid pullback based on election results and other factors.

 

The gold market may take a slope and steady approach to higher ground as the year comes to a close. The Fed will almost certainly hike again in December, although the hike could be smaller than 75-basis points. This week’s CPI reading due for release on Thursday may set the stage for the Fed and determine how much it hikes next month or even beyond.

The gold market is sharply higher Friday as a key recession gauge hit a 40-year high. Investors are reacting to the news that the yield on two-year notes has overtaken the yield of 10-year notes by 50 basis points. This is the most significant yield curve inversion since the 1980s, the last time the Federal Reserve was this aggressive with interest rates. Gold is higher by more than 2% on the day as the inverted yield curve and bargain hunting fuel the upside.

 

An inverted yield curve has always preceded a recession, and there is no reason to think that this time will be any different. With recession odds at 40-year highs, gold could stand to see more follow through buying in the weeks ahead. Although investors still expect the Fed to continue on its inflation fighting path, raising rates through 2023, that projection could change quickly if the threat of recession turns into reality. The Fed could very well find itself singing a different tune in early 2023 if the economy does tip into a full-blown recession. Not only could rate hikes stop, but the central bank could also even decide to start easing rates and taking them lower again.

 

The Fed has stated it wants to get inflation back to its desired target of 2% annually. This goal seems quite far-fetched at this point, however, as inflation remains near 40-year highs despite the Fed having hiked rates aggressively over the last year. The Fed could discover, sooner rather than later, that its objective is unattainable. Once the Fed realizes this fact, it may take an increasingly dovish approach to monetary policy and could start to take rates down again.

 

Also adding to some bullish sentiment this week was a recent report from the World Gold Council. The report stated that central bank buying of gold in the third quarter hit a record. Central banks bought nearly 400 tons of gold in Q3 for the biggest buying quarter on record. There could be numerous reasons for this increased central bank demand, including worries over the dollar, the war in Ukraine, the threat of a Chinese invasion of Taiwan and fears of a global recession. Whatever the case may be, if the largest financial institutions on the planet are buying gold, perhaps you should consider buying gold as well.

 

The market remains range-bound. The $1600 and $1700 levels are the key technical areas that must be breached for an extended move. The market has remained in between these levels for weeks now, and there is nothing to stop it from remaining in between them for an extended period of time. Once gld does breach these levels, on a closing basis, it could signal the beginning stages of an extended run that could take gold back to all-time highs or down to $1500. Central banks appear to feel odds may be greater for upside than downside. Either way, the long-term bullish thesis for gold remains fully intact.

Although you wouldn’t know it from the gold market’s recent behavior, central bank buying of the yellow metal has remained robust. These financial powerhouses have bought significant quantities of gold in the third quarter as inflation worries and other factors have fueled market volatility and investor angst. A quarterly report by the World Gold Council stated that central banks grabbed nearly 400 tons of gold in the third quarter, the most on record. The WGC also suggested this figure represents a jump of some 300% from the year prior. Obviously, central banks are seeing the need to go out and buy gold. Perhaps you should consider doing the same.

 

Of interest in the WGC report is the fact that the largest players were anonymous. Some nations, such as China and Russia, often prefer to keep their gold buying to themselves and do not report their purchases. Given the current war in Ukraine and a possible Chinese invasion of Taiwan, it certainly seems plausible that China and Russia could be the faces behind the anonymous buyers.

 

Of the known buyers, the central banks of Turkey, Uzbekistan and Qatar were the biggest purchasers. Turkey bought 31 tons of gold in the third quarter, boosting its total reserves to some 489 tons. Uzbekistan has been buying gold consistently, and added 26 tons to its holdings in the quarter. Qatar added 15 tons of gold in July, its largest monthly purchase on record.

 

The recent string of gold purchases has been a stark contrast to what has happened in the gold market. Prices have declined for seven straight months now, and one has to wonder if those declines could have been far steeper without such heavy buying from central banks. Gold ETF outflows have also likely been a factor. These ETF outflows are likely to continue until sometime next year which is the soonest the Fed would likely begin to pivot away from the inflation fight.

 

Gold’s fortunes may remain unchanged until the Fed does in fact start to pivot away from raising interest rates. The Fed will almost certainly finish off the year with another hike next month. Next year and early 2023 remain up in the air, however, and could provide the Fed a chance to start undoing the mess it has created by raising rates aggressively over the last several months. Once the central bank begins to ease rates again, the gold and equity markets may both breathe a sigh of relief and start heading higher again.

 

Until that time, the market remains stuck in no man’s land. The $1600 and $1700 levels remain key technical areas that could dictate price action for the months to come. Whichever side is breached first, on a closing basis, may see prices continue in that direction for a period of time. Such a breach could be a ways off still, however, and the market could maintain a tight trading range for some time.

The gold market is seeing some solid selling pressure in early action Friday. Just as gold rallied Wednesday as the dollar declined and yields stumbled, the gold market is today being sold off as the dollar and yields rebound. With few outside developments to drive the gold market, investors have been focused on its key outside markets in recent action. The dollar and treasury yields have both been major factors for price action in the gold market and will likely continue to act as such for the foreseeable future.

 

The Fed is set to meet next week, and at that point the gold market may have more to go on. It is widely expected that the Fed will implement another 75-basis point rate hike next week, its fourth in a row. What investors may be more interested in, however, is the central bank’s commentary. While the Fed will almost certainly hike rates again in December to finish the year, that hike could be smaller than recent hikes have been. A 50-point hike to end the year could potentially send investors a message that the Fed may take an increasingly dovish approach to policy in the year ahead.

 

The gold market may also be affected in the weeks ahead by global events. The war in Ukraine is still raging on, and the threat of a Chinese invasion of Taiwan appears to be on the rise. Should another war break out somewhere in Asia or elsewhere in the world, investors may flock to perceived safe haven assets such as gold. The war in Ukraine has been fairly quiet for some weeks now. That quiet can turn to noise and turn quickly, however, if things change.

 

The gold bulls may need to keep waiting for the Fed and its plans for early next year. The central bank has, thus far, stuck to its guns and continued hiking rates aggressively. While it is extremely unlikely for the Fed to adjust its policy or goals this year, early next year could provide the central bank an opportunity to take its foot off the gas pedal and take a pause from hiking rates. Not only could the Fed elect to take a wait-and-see approach, it could even begin to start easing rates again if the economy has slowed down to a dangerous level. Although next year may sound like quite a way off, it is not. 2022 has only two months remaining and then 2023 will begin. Waiting until next year could also allow the Fed to preserve some sense of credibility as it may look foolish to make changes now after saying time and time again that it would stay the course until the job is done.

 

Gold may remain in a range for the next several weeks until more is known about the Fed’s plans for next year. The $1600 and $1700 levels are key technical targets for the bulls and bears. If either level is breached, on a closing basis, the market could potentially continue to move in that direction.