The gold market is off to a slow start as the new trading weeks gets underway. Gold prices are down realy $12 per ounce in early Monday action, while silver also struggles and is down nearly $.50 per ounce.
With little economic data to digest today, markets are taking a pause ahead of a busy week ahead. The notion of rising inflation remains at the center of investors’ attention, along with the rapid and sharp rise seen in bond yields.
Yesterday, Fed Chairman Jerome Powell appeared on the widely watched television program “60 Minutes” to discuss his views on the economy and monetary policy. Despite the fact that Powell reiterated the Fed’s stance will remain the same for some time and that rates are not going anywhere anytime soon, the markets do not appear to be very interested in his commentary today.
The threat of inflation remains very real and could be the next major market driver. China, the globe’s second-largest economy, recently said that it is considering implementing price controls to get a hold of rising commodity prices. The Chinese Central Bank also reportedly wants to tighten lending standards in what some may view as another step to combat rising inflation.
Regardless of what China may or may not do, the U.S. appears to be quite comfortable standing pat for the time being, even if inflationary pressures do see a further spike. An easing Fed combined with rising inflation should help propel gold and other metals higher, and the recent downtrend in the yellow metal may prove to be nothing more than a pullback within a larger trend higher.
The bears still maintain control of the daily price chart. The bears have, however, apparently lost momentum as prices have been unable to make a fresh leg lower. If the bulls are able to sustain a decent price rally in the days ahead, it could confirm a double bottom on the daily chart and the trend could see a switch and reverse higher. The bulls will likely target resistance in the $1800 area, while the bears will look to break prices down below support in the $1700 region.
The higher inflation risks that have been covered well by the financial media in recent weeks may not yet be effectively priced into the gold market. According to Standard Chartered, the gold market has yet to price in those risks. The gold market appears to be lagging behind other major markets which have already begun to shift their postures toward rising inflationary risks.
Gold certainly has room to move higher, even significantly higher from recent levels. The gold market is seeing some competition from other asset classes as an inflation hedge, however, and that competition could keep a lid on any rallies in the near-term. Cryptocurrencies have likely taken part of the gold crowd away from the metals markets as Bitcoin has hit almost $60,000 in a wild trend higher. With the price of gold trading in strong correlation to yields and the dollar, it may take more time for the yellow metal to come around and rise on inflationary pressure.