The gold market is declining on Thursday as the bears seek to build some momentum. Spot gold prices are down over $7 per ounce and now sitting around the $1810 level. The bears will likely look to make a run below the $1800 level in the days ahead, and if able to produce a close below that, could see prices embark on a fresh leg lower.
Although gold has several factors working against it right now, it also has several key bullish factors that may keep it from falling much further. Inflation remains at or near 40-year highs. Despite some recent signs that inflation may have already peaked, price pressures remain a major source of concern for global markets and could keep the Fed and central banks moving to get them under control. The Fed may not be able to take rates as high as it might like, however, as stocks and risk assets would likely continue to deteriorate as the Fed tightens policy. The Fed could, therefore, elect to take a “pause” later in the year or even to reverse course and start lowering rates once again.
A Fed reversal, while possibly giving stocks a boost, could be the worst-case scenario of all. If the Fed does not get inflation to a more manageable level, it could become entrenched and shift market dynamics going forward. While the gold market may tolerate further rate hikes, to a degree, it could also skyrocket should the Fed decide to lower rates again at some point.
Gold could also benefit from the ongoing war in Ukraine. Showing no signs of slowing down, the war has affected prices all over the globe and could continue to do so as long as it is taking place. Not only that, but any additional Russian aggression in Ukraine or towards other nations could be met with harsh resistance from the west, possibly even leading to the Third World War. The threat of that scenario could keep buyers interested in gold as a safe haven and may keep the yellow metal afloat.
Gold could also possibly benefit from massive sovereign debts and runaway spending. U.S. debt now totals over $30 trillion dollars, and there may simply be no way it can ever be repaid without a massive dollar debasement or other measures. While such measures may not happen tomorrow, next week or next month, they could be approaching quicker than people realize
The gold market has been stuck in neutral territory for some time now. Despite some recent declines, the bears may not be able to get much going to the downside in the days and weeks ahead. Willing buyers appear ready to step in and buy any significant price dips. The ability to buy gold “on sale” may be welcomed by patient, long-term investors and could keep the yellow metal from falling much further. Not only may the metal not see additional declines, but at some point the bargain buying is likely to spur a sustainable rally higher.