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After spending several weeks moving sideways, the gold bears appear to be trying to take control of the market. Prices have been under pressure for days now, and on Friday the bears were able to push spot gold prices below the $1800 level. The market has since come back several dollars per ounce, and currently sits around the $1809 level. Whether the bears are able to maintain control is  another question entirely. The first few days of next week should provide a clearer picture on where gold may be headed.

The gold market has several balls in the air right now that could affect prices going forward. Inflation,  the war in Ukraine and the threat of recession to name a few. While inflation remains a key area of market concern, investors do appear to be becoming increasingly alarmed about the possibility of recession. The Federal Reserve has already hiked rates a few times, including its recent 75-basis point hike. It has been suggested, and acknowledged by the Fed, that it could overstep in its plans for higher rates. Should the Fed hike too far too fast, it could result in a recession hitting not only the U.S. but the globe. Fed Chief Jerome Powell has acknowledged this risk recently. Powell and the central bank are of the opinion that inflation is a greater economic risk than a recession.

If the Fed is unable to get price pressures under control, and soon, inflation could become entrenched. This could prevent the Fed and global central banks from seamlessly adjusting policies when they see fit, as price pressures would become more of a constant rather than a temporary phenomenon. The bottom line is that central banks could have a much more challenging time trying to manage economies and monetary policies. This could itself lead to recessions and may pose a far greater long-term threat.

The gold bulls may be forced to await some fresh, bullish inputs before gaining the strength to take the market higher on a sustainable trajectory. Long-term gold buyers appear comfortable buying around current levels, and any further declines could be aggressively purchased by long-term investors. The bulls could gain significant further excitement, however, if they are able to produce a close above the $1900 level. Nearly $100 away at this point, the bulls have their work cut out for them to get there and sustain those gains.

The gold bulls not only need to prevent any further downside, but also need to get things going to the upside. There are several issues that have the potential to give gold a major boost. These issues include the war in Ukraine, inflation and Covid-19. If any of these issues see a flare-up in the weeks ahead, gold could potentially do a rapid about-face and could start heading higher and doing so quickly. A short-covering rally could also fuel the bulls’ efforts and could see prices rise substantially in a short period of time.