Bulls Buy The Dip
The gold market is higher in early afternoon trade as the earlier dip was scooped up by bargain-hunting bulls. Spot prices are up over $10 per ounce following the conclusion of the day session as a combination of bargain hunting and short covering takes effect. The gold and other markets continue to monitor the ongoing Russian/Ukrainian war. The war has apparently taken a turn for the worse as Russia reportedly used a hyper-sonic missile over the weekend in an attack on a Ukrainian city. The conflict could potentially see increasing casualties at this point as markets still consider the possibility of nuclear weapons being utilized.
U.S. President Biden is set to meet this Thursday with NATO and EU leaders to discuss the Russian invasion of Ukraine. The Biden administration has said it will reaffirm its commitment to NATO and its allies.
Outside markets are in a bullish posture for gold today. Crude oil prices are higher, hitting over $110 per barrel. The dollar is weaker on the day while yields are pushing slightly higher. The continuing rise in treasury yields is likely due to increasing inflation worries. The yield of the benchmark 10-Year Note may rise further as the Fed lags behind the inflation curve. Following the first 25-basis point rate hike last week, markets are now wondering how aggressive the Fed may get in order to battle price pressures. Many now believe the Fed will be forced to raise rates seven times total this year. The Fed also left the door open to larger rate hikes, which could mean at some point the central bank elects to hike rates by 50 rather than 25-basis points. The shock and awe from such a move may eventually fuel a decline in inflation but comes at a price. Stocks and risk assets may continue to trend lower during the tightening cycle and a large-scale sell-off could be seen.
Fed Chairman Jerome Powell said today that the Fed could also decide to raise rates at a faster pace if inflation does not begin to abate. The expectations for this year, which were previously for inflation to peak in the first quarter and then level off, have already fallen apart. The hopes for a large decline in prices in the second half of the year has completely fallen apart, and as such the Fed could become a lot more aggressive with policy than previously thought.
The next several weeks could see the bulls attempting to fight off a correction. The market has already begun correcting since reaching new all-time highs earlier this month and the bears may battle to see further momentum in the weeks ahead. The weekly chart may be indicative of a top being reached. The bulls will look to take prices back above the $2000 on a closing basis. The bears will look for a close first below the $1900 level and then the $1850 area. A close below these levels could boost the bearish narrative and provide further downside momentum.