The gold market is lower in early action today as recent commentary from Fed Chairman Jerome Powell is being viewed as more hawkish than anticipated. Rising treasury yields today are being blamed for gold’s poor performance in the aftermath of Powell’s hawkish comments yesterday. Powell suggested yesterday that the Fed could consider hiking rates by 50-basis points rather than 25. He also implied that the fight against inflation is important enough to slow down the economy through higher rates or other actions.
An increasingly hawkish Fed is not only surprising but also has many wondering if the central bank will actually follow through. Talk is one thing, action is another. It remains unclear just how aggressive the Fed may become in its policy and whether it is simply “talking the talk” to appease investors right now. If the Fed does not act aggressively, however, inflation could become even more out of control in the months ahead. Price pressures certainly appear as if they are here to stay, and regardless of what the Fed does or does not do, it could take significant time for those pressures to be alleviated.
Outside markets are moving today as well, crude oil is a bit weaker today after a recent sharp rise. The oil market has been on the offensive lately as the EU could be getting closer to banning imports of Russian energy. The dollar is firmer today as well while yields on the Ten Year Note are up to over 2.35%. With the war in Ukraine not seeing much change in recent days, risk appetite remains somewhat depressed.
The gold bulls are still in control on the daily chart. That control is becoming increasingly fragile, however, as the selling has not stopped much since the metal reached new all-time highs earlier in the month. Spot gold prices are down over $20 per ounce in mid-morning action today and are getting closer and closer to testing the $1900 level on the downside. The formation of a bearish pennant on the daily chart is not helping the bulls any and could lead to further downside pressure. The bulls will look to take proces higher again to produce a close above resistance at the $2000 level. The bears are looking for a decline to produce a close below the $1900 level and then below the $1850 area. Closes above or below these key levels could signal further movement in that direction and may attract additional traders and momentum players from the sidelines.
Recent CFTC data showed hedge funds reduced their bullish gold bets. Despite this reduction, the metal is still being viewed as highly attractive given the current geopolitical scene as a safe haven. Gold’s safe haven appeal is not likely to dry up much further anytime soon. The metal has outperformed Bitcoin and cryptos and remains the largest store of value for investors looking to protect their wealth. Safe haven appeal could easily drive gold back to all-time highs or beyond and could be accelerated at any time with fresh developments out of Ukraine or other economic or political influences.