The gld market is sharply higher Thursday as risk aversion and chart based buying are featured. The four-week high hit by gold today puts the bulls within easy striking distance of the $1800 level at which the next major test may occur. If the bulls can produce a close above $1800, it may not only shake out more of the bears but it would likely attract a fresh wave of buyers. That could put the bulls in a position to possibly challenge the $1900 area in the weeks ahead.
Markets are more nervous today following Chinese actions yesterday. Following a trip to Taiwan by House Speaker Pelosi on Tuesday, China fired several missiles yesterday in the vicinity of Taiwan. Although the missiles were labeled as a test, the Chinese Government did seemingly want to get a point across. Further action by China around Taiwan could stress U.S./Chinese relations further. After the Russian invasion of Ukraine this past winter, the idea of a Chinese invasion of Taiwan does not seem far-fetched.
In other news today, the Bank of England raised interest rates by the most since the mid-1990s yesterday. The .5% rate hike from the BOE was implemented to fight raging inflation. The BOE did also warn of an extended U.K. recession, however, and may lend further credibility to the idea of a Fed-induced recession in the U.S.
The markets will have plenty of time to digest recent Fed action. The next FOMC meeting will not take place until September. The Fed left the door open to what it may do come September. Fed Chairman Jerome Powell suggested the central bank would rely on the data stream to arrive at any decisions.
The data stream has not been great, thus far, and may point to inflation lingering around a 40-year high. Despite inflation remaining very problematic, the Fed could elect to put its rate hikes on pause. The Fed could also possibly even decide to reverse course and start lowering rates again. While any decision by the Fed to start easing again would not be an easy one, it could become easier if the economy enters a recession and if political pressure ramps up. Chairman Powell seemingly suggested last week that the Fed could begin to pivot away from its inflation fight. Others, however, feel strongly that the Fed will stay the course and continue to ratchet rates higher in the months ahead despite any potential damage to the economy.
This could, in turn, introduce the U.S. to an extended period of stagflation. With inflation at high levels and little to no economic growth, stagflation can last for several years or longer and could become very tough to climb out of.
The threat of stagflation may keep some investors viewing gold as a safe haven asset. As stocks work lower, an increasing number of investors could turn to gold for its perceived safety and wealth protecting properties.