The stock market saw some significant declines on Monday as the new trading week got underway. The question many investors may now be asking is whether October will hold more declines in store or even if a major market crash is imminent. The direction of equities is important for gold, as lower stocks may drive buying in gold and stronger stocks may subtract buyers from the market.
Equity markets are, thus far, seeing a very strong rebound on Tuesday. This rally today is to be expected, however, and does not necessarily mean that equity market risks have abated. The Fed’s tapering plans, inflation, Evergrande and more may all keep volatility on the rise this month and the selling pressure on. Some have even suggested that October will see a major market crash-one in which every asset class will decline sharply including Bitcoin and gold. Whatever the case may prove to be, the markets appear headed for some changes that could shake things up substantially. Such a shakeup could make now and the months ahead the ideal time to be watching and buying physical gold.
In addition to the market threats mentioned above, investors will also need to pay attention to the debt ceiling. The U.S. is set to run out of cash on October 18th. Without a deal in place beforehand to raise the debt ceiling, the country risks a default. A U.S. default would be its first in history and would have a significant impact on global financial markets. Rising borrowing costs and the threat of recession are two of the possible results from a default, and the effects of these could be long-lasting and severe. With so many other major issues on the table right now, it is difficult to imagine a more challenging time for a debt showdown than now. Hopefully, the U.S. Congress will pass legislation pertaining to the debt ceiling sooner rather than later and avoid a major shakedown of consumer and investor confidence that could arise from waiting until the very last minute.
For now, the gold market appears to be comfortably range bound and could stay that way for a significant period of time. As of today, the market is holding support in the $1750 area. The bulls have, however, shown little to no buying interest in recent sessions. With the daily chart now tilted in the bears’ favor, any rallies may be due to short covering rather than fresh buying. This could, in turn, keep any upside price pressure limited.
As the bears look to take out support at $1750, their next downside target likely stands around the $1700 level and then $1670. The bulls, on the other hand, need to target previous resistance at $1800. A close above $1800 may restore some of the bulls’ confidence, however, resistance in the mid-1830s remains allusive. Only a breach of the mid-1830s, on a closing basis, may ignite a fresh round of buying that could sustain a move higher.