Bulls Have Some Work To Do
The gold bulls have their work cut out for them. The yellow metal is modestly higher today as it sees a corrective bounce from recent weakness. Spot gold is trying to recapture the $1900 level today as it sank to a nine-week low yesterday. Some bargain hunters have stepped in today and some shorts appear to be covering as well. More work remains, however, for the bulls to negate the recent downturn that has been exhibited within the market and to undo some of the negative sentiment seen in recent action.
The markets are also considering the ongoing Chinese lockdowns and how they could affect the world’s second-largest economy. As China locks down more of its major cities, worries are increasing that it could lead to a severe supply disruption for already-strained global markets and economies. China’s economy could, in fact, suffer greatly this year due to the lockdowns and it remains unclear how long such measures may be necessary. As if the Chinese lockdowns were not enough for markets to worry about, the ongoing war in Ukraine is also fueling some risk aversion today. The war has, thus far, shown no signs of slowing down.
Crude oil is a bit higher today and firmly over the $100 per barrel level. Stronger crude may be bullish for metals as it also feeds into the inflation narrative. The dollar is also stronger today, however, and may be viewed as being bearish for gold and metals. The dollar hit another two-year high today and could be poised for further gains in the weeks ahead. Yields are steady today, with the 10-year fetching a yield of 2.75%. Outside markets may have diminishing effects on the gold market as investors keep their eyes on the larger picture.
The bigger picture could include much higher interest rates. The Fed has already raised rates once by 25-basis points. Next month, the FOMC meeting could result in a 50 or even 75-basis point hike. The next few meetings could see such hikes that have the potential to produce more of a shock and awe effect than the standard 25-point hike. The Fed may find itself going from not acting soon enough or enough overall to overacting and putting the economy into recession. Although a few rate hikes may not necessarily tip the economy into a recession, the wrong message sent by the Fed or overly aggressive action could.
The bears are in control of gold on the daily chart and a downtrend is now in place. The bulls and bears are now on a fairly level playing field, with neither really having an advantage from a technical standpoint. The bulls will look to initially target the $1950 level and then $2000. The bears will look to produce a close below support in the $1850 area. Whichever levels give way first could signal the upcoming market trend. A lack of downside follow-through at current levels could also be considered bullish as the bulls absorb the bargain and look to get long.