The gold market is slightly lower in early trade Monday as the new trading week gets underway. Spot gold prices are just below key resistance at the $1850 area and could be pushed lower if the bulls fail to retake this level again very soon. Also adding support for gold are a lower dollar and stable treasury yields. Higher crude oil may also lend a hand as oil prices hit the $120 level overnight. Stocks are solidly higher in early action today as some degree of risk appetite is present. Easing Chinese Covid restrictions may be largely responsible for higher stock markets today, although it is important to keep in mind that restrictions could be enforced again at a later date if the virus sees a rapid spread again.
Although the week is full of data points, there are two key points that could influence market action this week. The European Central Bank will be meeting this Thursday, holding its regular monetary policy meeting. Investors will also see the latest data for the Consumer Price Index due for release on Friday. The CPI figures may be an area of focus for markets and is expected to show a rise of 8.2% following an April rise of 8.3%.
The meeting of the ECB may send another shot across the bow regarding global inflation. The central bank is likely to lay out its plans for tightening monetary policy as the European Union also wrestles with rampant inflation. Any aggressive rhetoric or plans of action from the ECB could move markets as the battle rages on between policy doves and hawks. The hawks seemingly have a strong upper hand currently and tighter policies may be expected not only in Europe and the U.S. but elsewhere as well. The global tightening period is already underway, and central banks will need to navigate the waters with extreme care. Overly aggressive action from global central banks could put the world economy into recession, while underwhelming action could allow inflation to accelerate even further.
The gold bears are still in control on the daily chart. A 2.5-month downtrend has now been negated, however, and the bulls appear to be working to establish a fresh trend higher. The $1800 and $1900 levels remain key for the market. The bulls and bears will look to produce a close above or below these levels and that close could determine price action for the months ahead. The bulls will, in the near-term, seek to take prices back above previous support at the $1850 level. A close above $1850 could encourage more buying interest and the market could then make a rapid run towards the $1900 area. A failure by the bulls to extend prices higher in the weeks ahead could provide ammunition for the bears. A downtrend could again develop that could take prices well below the $1800 level, possibly not stopping until the $1700 area is reached.
Any sharp dips in the price of gold are likely to be aggressively bought at this stage, however, and any moves lower may be very short-lived in nature.