Bulls Losing Ground
The gold market is lower on Tuesday as the bulls continue to lose ground. Growing risk appetite, lower crude oil, and deteriorating technicals are keeping the gold bulls at bay and allowing the bears to move the market. Spot gold is down nearly $15 per ounce in early action as prices now sit around the $1722 level. The bears are now only a day or two away from being able to challenge the key $1700 level. If able to produce a close below this area, the bears could be in business and the market could head lower for a period of time.
Stocks are attempting to rebound today from a two day sell-off. The markets have felt the weight of the Fed in recent days. Since Jerome Powell’s speech on Friday, stocks have lost significant ground and gold has done nothing but move lower. Whether that trend continues is unclear. Markets could potentially go into a holding pattern and try to wait for the next FOMC meeting next month before making any sustainable moves. Markets still have numerous issues to worry about including Chinese Covid lockdowns, the threat of a Chinese invasion of Taiwan, rampant inflation and more.
The biggest data point of the last trading week of the summer will be Friday’s non-farm payrolls data. The figure is forecast to show a gain of 325,000 jobs versus a gain of 528,000 in July. A large miss in the jobs data could potentially be market moving. It could also give the Fed a lot more to consider before it possibly raises rates again aggressively in just a few weeks. A better-than-expected jobs number would almost certainly cement an aggressive hike by the Fed next month.
Regardless of what the Fed does next month, concerns are likely to linger regarding interest rates and aggressive policy tightening by the central bank. The Fed has recommitted itself to battling inflation and sees it as the biggest risk to the economy. Powell has stated so before and reiterated this point last week. Hopes for a Fed “pivot” may now be totally gone for the time being. The notion of higher rates may weigh more heavily on stocks and risk assets in the months ahead. This begs the question of whether the Fed, at some point, caves in to the pressure and considers easing again to appease the markets.
Both the dollar and yields remain elevated while crude oil is lower. These outside markets may also weigh on gold in the days ahead and keep any buying limited. The current backdrop seemingly suggests the bears may maintain control of the market and take prices lower in the coming months. The gold bulls will have to, yet again, show their mettle and step in to buy the dip. With the long-term bullish narrative remaining unchanged, that may very well be what occurs over the next few months before gold is able to make a sustainable turn higher again.