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As we discussed briefly yesterday, markets are still reacting to the latest speech from Fed Chairman Jerome Powell. In the speech which took place yesterday, Powell took a decidedly dovish tone in his comments, essentially saying the Fed would now slow the pace of rate hikes starting as soon as next month. While Powell did not say the Fed would start cutting rates right away, he did perhaps take the first step in preparing markets for the eventual policy easing.

Powell did also say that inflation remains far too high and that rates will need to remain restrictive for some time. How long that may be is anyone’s guess at this point and may simply depend on whether the economy can handle higher rates for longer without falling into recession. Should the economy begin to really contract, it is both possible and likely that Powell could have a rapid change of mind and could look to start easing quicker than anticipated to keep the economy afloat.

Powell’s speech at the Brookings Institute yesterday has been deemed as leaning dovish, and that caused a rally yesterday in both gold and stocks. The effects of that dovish tilt are being seen again today, as both the dollar and treasury yields decline on the outlook. The dollar and yields have been a major roadblock to higher gold for some time now, and any significant declines in either market may be fuel for the gold bulls to push the market higher. Having retaken the $1800 level today, the bulls must now show they can hold this level. A quick decline back below it could signal some underlying weakness in the market and gold could spend a lot more time trading in a tight range.

The civil unrest in China also remains the subject of much concern. Although the situation has not yet spiraled out of control, it does have the potential to do so. China now reportedly plans to relax some of its Covid restrictions and that may lend some support for the global economy and markets. China is the world’s second-largest economy, and anything that speeds it up or slows it down can be market-moving.

Market focus will now turn to Friday’s employment situation report. The U.S. is expected to have added some 200,000 jobs in November, compared to an addition of 261,000 jobs seen in October. If the jobs data comes out in line with expectations, it may not have much effect on markets. A significant beat or miss, however, could be market-moving and could shape investor Fed expectations for the months ahead.

Now that December is underway, gold may not do much of anything to finish out the year. Investors are keenly interested in what the Fed does in 2023, and may be comfortable taking a wait-and-see approach until the new year gets going. For the time being, the bulls will need to try to keep trade above the $1800 level to maintain recent bullishness.