The gold bulls are building on the rally of the last few days as the trading week comes to a close. Since the Fed raised rates by another 75-points on Wednesday, the gold market is higher by some 2%. The bulls have now out some significant distance between the market price and support at $1700.
The Fed raised rates this week by another 75-points. It did not, however, provide the expected hawkish rhetoric afterward. Fed Chairman Jerome Powell essentially left the door open for the FOMC meeting in September. He said the data from now until then would determine any action the Fed takes.
Given the two months until the next FOMC meeting, the gold market could have room to run higher. Inflation data has remained hot, and while high inflation may be bullish for gold, it can also detract from gold’s appeal given the Fed’s response to it. Should the Fed continue its aggressive stance toward monetary policy, the gold bears could maintain control of the market as rates rise further.
The Fed has had a significant effect on the dollar in recent months. The notion of higher interest rates and expanding rate differentials has boosted the dollar to 20-year highs. A stronger dollar weighs on the gold market as it makes gold relatively more expensive for foreign buyers. Should the Fed take a softer approach toward rates, however, the dollar may find it challenging to maintain its recent upside. If the dollar reverses course, it could send gold higher.
The war in Ukraine has been somewhat quiet for months now. Any fresh developments in the war could, however, have a significant impact on the gold market. A resolution to the war could send stocks and risk assets higher while weighing on gold and perceived safe haven assets. Should the war escalate further, however, investors may turn to gold and its perceived safety.
The next several weeks could see expanding volatility within gold. Until the last few days, the market had gone through an extended period of volatility contraction with little to no price movement. That period has seemingly come to an end, however, and the market could be in the midst of a larger move higher as volatility expands again.
The bears are still in control of the daily trend. Their grip has been loosened this week, however, as the bulls have resurfaced. The $1700 and $1800 areas remain key technical levels for the gold market. Whichever level is penetrated first with a close above or below could determine the market’s direction for weeks or months to come.
The bulls could target a test of the $1800 level in the sessions ahead. Following gold’s recent bounce from below $1700 to over $1760, the market may need some rest before attempting a sustainable move higher. Some back and fill trade is to be expected and may present longs with an opportunity to add to positions or initiate new ones on any price dips.