Gold Higher On Busy Economic Data Day

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The gold bulls are taking a run at higher prices once again today. Spot gold prices are now firmly back above the key $1850 level and are approaching the $1870 area. If the bulls are able to maintain the day’s gains, there could be a run towards the $1900 level in the days ahead. A breach above $1900 on a closing basis could pave the way for even more gains in the days ahead.

 

The major driver for higher gold today is likely declining bond yields and a weaker dollar. The ADP National Employment report may also be providing some fuel, as it showed a less-than expected rise of 128,000 jobs. Although the ADP report has not shown much reliability as a precursor to Friday’s non-farm payrolls data, it could potentially point to a weaker-than -forecast showing for the largest data piece of the month. Should the non-farm payrolls data disappoint, it could send stocks lower while also providing gold a boost. If the figure beats expectations, however, stocks may rally while gold declines.

 

As investors parse the economic data stream looking for clues about what the Fed may or may not do, they will have plenty to consider on this busy economic data release day. Today, markets will get the latest readings on several key data points, including the ADP national Employment report, the Challenger job-cuts report, weekly jobless claims, revised productivity and costs as well as manufacturing data. Weekly DOE data will also be released.

 

While all of these data points are important and have the potential to move markets, none of them has the power to move the market the way that Friday’s non-farm payrolls data does. It is expected that the total number of jobs created will come in around 328,000, a far cry from the previous month’s gain of 428,000. The unemployment rate is expected to see a slight dip, however, from 3.6% to 3.5%. The jobs data this month could have a special impact on markets as they await further action from the Fed. It is widely expected that the Fed will raise rates by at least 50-basis points at its next two consecutive meetings. Should a key data point, like the jobs figures, show a very large downturn, it could give the Fed reason to pause or take a slower approach. If the data is as expected or beats expectations, it could give the Fed the all clear to continue hiking aggressively.

 

Both the dollar and yields are a bit lower in early action today while crude oil is also weaker. Crude could see some fireworks, however, as there is an OPEC meeting going on today. The oil cartel is expected to raise its production levels and could even sanction Russian oil. If the cartel does not take any action, crude is likely to keep climbing as long as the war in Ukraine rages on.

Down Today But Far From Out

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The gold market is seeing some moderate selling pressure today as investors prepare for the weekend. The gold bulls may, however, be simply gearing up for a strong run towards resistance in the $1840 to $1850 area. An upside breach of this area on a closing basis could set the stage for a rapid run higher that could potentially take the yellow metal back to all–time highs or beyond.

 

Despite worries over the Fed and its decisions regarding monetary policy, the gold market has several key issues working in its favor currently that could drive the metal to new all-time highs. These issues include persistent, rising inflation, a leveling off of the dollar and strong crude oil prices. The threat of persistent inflation is so great that numerous analysts believe the Fed will be forced to raise rates more than the three times it has already penciled in for the year. The Fed has already said it will taper its monthly security purchases at a faster rate to bring its QE to a close, and many now expect the first of several rate hikes to come in March.

 

Although many are under the false belief that a tightening of monetary ;policy is bearish for gold, the metal is likely to move higher as the Fed takes action. Previous tightening cycles have seen the value of gold rise and there is no reason to believe this time around will be any different. With the Fed having seemingly boxed itself into a corner, the gold market could gain a lot of ground in the months ahead if the central bank remains well behind the inflationary curve.

 

The demand for inflation hedging assets is likely to mount further in the months ahead. Cryptocurrencies, such as Bitcoin, were clobbered yesterday and may see sideways to lower price action for the foreseeable future. The lack of a competitive asset class may give the gold bulls more ammunition. AS inflationary pressures remain or strengthen further, an increasing number of investors are likely to seek out assets they believe may protect their wealth and preserve their purchasing power. Gold will likely be at the top of the list and could see a rapid and sustained run higher on such buying should it develop.

 

The next few weeks should  be very telling for the gold market. The metal will either breakout higher or the bears will have enough power to stop its recent upside. An upside breakout is likely to attract more buyers and add strength to the market. An upside failure, on the other hand, could be devastating for gold as many of the bulls could possibly throw in the towel, creating a large sell-off in the process. While this scenario seems very unlikely, it must be considered. For the time being, however, the bulls will look to conquer resistance just $15 to $20 higher from current price levels. The bears will look for a decline and attempt to take process below the $1800 level and then the $1775 region.

Equity Weakness Fuels Metals Demand

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The gold market kicked off the new trading week on a strong note Monday. Spot gold prices gained nearly $26 per ounce as a combination of short covering and bargain hunting fueled buying interest in the metal.

 

The price of gold hit a multi-month low on Friday. The weakness to end last week provided bulls with a strong reason to buy today as key outside markets also showed cooperation towards gold and helped the yellow metal gain ground. Stock weakness, especially earlier in the session, also lent a hand. The story for gold investors and traders this week remains the same: Inflation and rising bond yields.

 

The benchmark 10-year treasury note fetched a yield of 1.369% today, hitting a one-year high. Although the 10-year yield has been trending higher in recent weeks, some analysts have suggested that the rate would need to hit 4% before the note could really begin to compete with technology stocks for investor attention. Rising yields could be viewed as inflationary, however, and that inflationary outlook is what may have investors troubled. The talk of accelerating inflation comes at a time when the U.S. Government is looking to roll out a massive stimulus bill that could further fuel rising prices.

 

The threat of inflation is not just a U.S. problem, either. Several nations, including the U.S., Europe, China and the U.K. , will begin to roll out their own respective environmental initiatives. As the central banks of these areas take action, the flood of capital could quickly become excessive while fueling a rapid and significant rise in the prices of goods and services.

 

Regarding monetary policy, U.S. Federal Reserve Chairman Jerome Powell is scheduled to speak to the Senate Banking committee on Tuesday. Investors and markets may pay close attention to Powell’s commentary as they look for clues as to the central bank’s plans and thinking.

 

A weaker dollar and higher crude oil prices also supported gold on Monday. Higher crude prices are yet another possible symptom of rising inflation and may be watched closely by investors.

 

In other news, the Central Bank of Russia has continued its accumulation of gold. The bank reportedly added more bullion to its reserves and its holdings of gold have surpassed its dollar position. This trend could become increasingly important as a growing number of nations look to establish trade outside of the greenback in the months and years ahead. The dollar is clearly under a degree of pressure as the global reserve currency of choice, and if the dollar loses its top position it could send the value of the currency spiraling lower. Further dollar weakness could boost gold further, possibly fueling a return to previous all-time highs or beyond.

 

Although Monday’s strong showing was certainly helpful, the bears still have control of the daily chart and the multi-week downtrend that has developed. The bulls next target may be a close above resistance around the $1850 level. The bears will target the $1800 level and last week’s lows near $1760.