The gold market is solidly higher today as the bulls gain further momentum. Spot prices are up over $15 per ounce as of this writing and currently stand at over $1969. The bulls could look for a push this week to take prices above resistance at the $2000 level. A failure at this level could set the stage for a reversal, however, and prices could see a significant decline if longs elect to bail out of positions. The bulls are out in force today following a hot inflation report and sharp rally in crude oil prices.
Inflation remains the talk of the town outside of the ongoing war in Ukraine. In the key data point of the week, the Consumer Price Index registered a reading of 8.5% year-over-year this morning, marking the highest rise in 40 years. Estimates were looking for a rise of 8.4%. On Wednesday, markets will get the latest reading of the Producer Price Index. This gauge will also likely show inflation running very hot and at multi-decade highs. Higher inflation levels have historically been bullish for hard assets like gold and this week may prove to be no different.
The Russian/Ukrainian war is now expected to take a bloodier tone. European countries may now be shifting their focus to arming the Ukrainians rather than implementing additional sanctions against Russia. The war may turn out to be far more protracted than previously thought and the fighting may intensify from this point forward after peace talks have reportedly stalled.
Outside markets are on the move as well. Crude oil is up several dollars on the day and is sitting around $105 per barrel. The Dollar Index is also up on the session and is sitting near a two-year high. The benchmark 10-year Note yield is now fetching 2.7% and could rise further in the weeks ahead.
Although the Fed has acknowledged the problem inflation poses and will attempt to get it under control through as many as seven rate hikes this year, higher rates are unlikely to have much impact on the gold price in the year ahead. Real interest rates are unlikely to go positive, and until they do, rate hikes may not even make the gold market flinch. Despite the threat of higher interest rates in 2022, the gold bulls may remain undeterred and may continue to buy any dips until proven otherwise. The same may be said for the investing public. The attraction of price dips to long-term buyers may prevent any significant declines in the gold market and could keep it moving higher into fresh all-time highs.
The bulls remain in control of the daily chart as prices hit a four-week high today. The objective for the bulls, in the short-term, is to produce a close above resistance at the $2000 level. The bears will look for a decline to produce a close below the $1915 area and then $1850.