The gold market is seeing some sharp declines again today as the bears garner additional momentum. Today’s declines have now negated the previous uptrend and have put the bulls and bears on equal ground. That could make for some very interesting price action in the days ahead as volatility could see an upswing from here as the two sides battle for control of the metal.
The one-month low seen in gold today may attract further selling pressure into the market in the days ahead. That selling pressure could be counteracted, however, by concerns over the employment report due for release Friday. The heavily watched non-farm payrolls data is set to show an increase of 573,000 jobs, a modest rise from October’s addition of 531,000 jobs. The jobs figure is arguably the most important piece of economic data released on a regular basis. A stronger than expected showing of jobs data could give the Federal Reserve more reason to taper and taper faster than originally anticipated. A weaker than expected figure, however, could set the stage for some rethinking by the Fed and possibly even an adjustment of its tapering timeline. At this point, the gold market would likely benefit from weaker data as it could keep the Fed on hold longer, lessening the opportunity cost of holding gold in the process.
The first U.S. case of the Omicron Covid variant was discovered yesterday in California. That news, while not unsuspected, still rattled stock markets yesterday. It has been suggested that the variant is no more severe than other strains. However, and may even be less severe. Vaccination may also prove effective against the newest strain. Despite these assurances, however, markets may remain quite vulnerable to Covid volatility in the weeks and months ahead. Higher levels of volatility could potentially fuel a sell-off in equities and much of that capital could find its way into the gold market.
Although gold has some issues working against it, the yellow metal does still have the threat of increasing inflation on its side. Earlier this week, Fed Chairman Jerome Powell suggested that the central bank may have to taper its monthly bond purchases quicker. This commentary was far more hawkish than previous talk, although it is important to be clear that despite some hawkish rhetoric, the Fed is still maintaining dovish policies. Powell’s comments may suggest that the Fed is already far behind the inflation curve and now acknowledges that. The central bank could, therefore, be forced into playing catch-up later in the year.
Powell’s previous suggestion that inflation was likely to be “transitory” in nature has been proven flat wrong. Prices are now at multi-decade highs and are not showing any signs of letting up any time soon. Price pressures could keep investors looking for ways to protect their assets and purchasing power, and gold is likely the best bet for them to do exactly that.