A Slow Start
The gold market is off to a slow start as the new trading week gets underway. Spot prices are little moved from unchanged, trading up some thirty cents per ounce. The market is focused on government spending today as two key issues come up for a vote later in the week.
President Biden’s infrastructure plan is due to be voted on by the House of Representatives on Thursday. That is the same day in which government funding could dry up, leaving the government partially shutdown starting Friday if no additional funding deal is reached. The potential for the government to run out of funding Thursday evening is likely to become an increasing point of anxiety in the days ahead if a deal is not reached beforehand. The threat of a partial shutdown starting this week could fuel market volatility and selling and may give perceived safe haven assets such as gold a major boost.
The Biden Administration’s infrastructure plan could also send waves through financial markets. These waves would come at a time when worries over the debt ceiling are already mounting and concerns over U.S. fiscal health are on the rise. A lack of plan passage could send the dollar lower while also igniting bearish forces within stocks and risk assets.
Treasury yields have also again taken center stage as yields are on the rise again. The benchmark 10-year Treasury yield is fetching some 1.446% today and could see a further rise if worries over national spending and debt increase. Higher yields could cause some ripples for gold as it makes the opportunity cost of holding the metal more expensive. A significant rise in yields may not be seen, however, until the Fed actually begins hiking interest rates. Such a move could still be quite a ways off and the central bank is far more likely to taper its monthly security purchases first.
The gold bears may now hold a slight overall advantage on the daily chart. That advantage could change quickly, however, to the bulls if they are able to mount a rally back towards the $1800 area. The market appears to be in technical no man’s land for the time being and could spend a lot more time there. The bulls must still target and take out the $1800 level on a closing basis. The bears, on the other hand, want to take prices down below $1677 per ounce. The upside breakout or downside breakdown could be indicative of gold’s fortunes for the foreseeable future. Although this move may take time to develop, it could prove to be very powerful and long lasting once it does.
The gold market still has numerous reasons to buy it and hold physical gold for the long-term. Dollar weakness, runaway government spending, geopolitical risks and more are just a few of the reasons to consider an allocation in gold. The current period of consolidation could also prove to be the ideal time to acquire the metal as current price levels may not be seen again once the metal stages an upside breakout.