The gold market is seeing solid selling pressure on Tuesday following the significant decline seen in Monday’s session. If the bulls are unable to step up soon and stem the tide of red, the bears could inflict serious chart damage and turn the bullish tide around. Despite this week’s shortened schedule due to Thanksgiving on Thursday and the lower trading volumes associated with it, the yellow metal does have several key issues working against it currently that could potentially fuel a significant market reversal.
Weaker crude oil, a stronger U.S. Dollar and rising U.S. Treasury bond yields are all playing a p[art in gold’s decline. These factors have seemingly overtaken the inflation narrative this week and could cause further selling in the metal over the next several sessions.
Perhaps the biggest story of the week is the Jerome Powell appointment by President Biden. The question of who would run the Federal Reserve has been a subject of debate in recent weeks. Some believed that super dove Lael Barinard would be appointed the next Fed Chairman and he would almost certainly keep the central bank on an accommodating path. Although Powell is not widely thought of as being hawkish, he is likely to keep the Fed on its current path. That path has seen some hawkish changes in recent weeks, however, with the central bank announcing its plans to begin tapering its monthly security purchases or QE. Talk of the Fed even raising interest rates has been growing in recent days as well as it becomes more widely thought that the central bank is already well behind the inflation curve and may need to catch up at some point.
During a speech on Monday after being appointed by President Biden, Jerome Powell stated that the Fed would focus on fighting inflation. Statements made by Powell and Biden on inflation recently have likely fueled a spike higher in bond yields. The benchmark 10-year Treasury Note is currently fetching some 1.65%.
The rest of the trading week may be very quiet as many take Wednesday off ahead of the Thanksgiving Holiday on Thursday. Markets are open Friday for an abbreviated session, although it is typically one of the lowest volume sessions of the year. Many traders and investors may be OK with calling it a week and will likely not return to the markets until Monday.
The nearly two-month old uptrend on the daily chart is in serious danger today. The bulls will need to take out resistance at the week’s highs around $1850 in order to get back on track. The bears will target the $1800 level and then the November lows around $1758. Although it may be very unlikely, a further breakdown of prices could see a rapid and sustained move lower. The bulls must, therefore, stabilize prices before further chart damage is inflicted. The sessions ahead will be very important and could dictate how gold will trade into year end.