The gold bulls appear to be gaining momentum today, as spot prices are sharply higher in early morning action. Gold is up over $24 per ounce as inflation fears again drive buying. Silver has notched a seven-week high while gold is pushing up against a key resistance level. The next few sessions for gold could be very telling. If the market is able to overtake the resistance in the $1840 to $1850 area, it could be off to the races and see a rapid and sharp rise in value that could push it back towards previous all time highs.
Risk aversion is heightened at mid-week as numerous geopolitical issues are in play. Russia appears to be readying for an invasion of Ukraine, as it has placed well in excess of 100,000 troops along the border. A Russian invasion of Ukraine could potentially pull the United States into the conflict, and one can only imagine how a U.S./Russian conflict could take shape. In addition to the Russian threat of Ukraine, North Korea is back to its old tricks in recent days, again test firing missiles. The United Arab Emirates were attacked just a few days ago by terrorists in a move that has fueled a price spike in the crude oil market. Oil is now trading at a seven-year high, fetching almost $87 per barrel.
Stronger crude oil prices will likely fuel further concern over inflationary pressures and could even slow economic activity if prices get high enough. As oil approaches the $100 per barrel level, it also begs the question of if the U.S. will release some of its crude reserves to lower prices in the marketplace.
The threat of lasting inflation seems to be on the rise. Overnight, the U.K. reported its Consumer Price Index at the highest level in three decades. The 5.4% rise for December year-over-year will likely give markets something else to worry about and may give the Central Bank of England more to ponder as it lays out monetary policy.
Dollar weakness today may also be giving gold a boost, although that boost may be limited by treasury yields. The benchmark 10-Year Treasury is currently yielding 1.89% and seems poised to try to rise to 2% or higher in the weeks ahead. The 10-Year German Bond has risen into positive territory for the first time in nearly three years today, currently fetching a yield of .008%.
The rise in yields is something that could continue to weigh on the gold market. The higher yields could be offset, however, by a weaker dollar, geopolitical risks and the threat of inflation. For the time being, the gold bulls are still in control of the daily chart, and with today’s solid upside are looking to solidify that control. An important test of resistance could be seen in the days ahead, and if gold is able to stage an upside breakout, the market could blast higher in short order.