The gold market is a bit lower in mid-morning action Friday. The spot price is down by $3 per ounce in quiet trade thus far. Despite the day’s declines, however, the market remains very close to the $2000 mark and will likely test this area early next week. The combination of an increasingly dovish Fed and bank worries may keep gold well supported in the weeks ahead.
Recent economic data has also been bullish for the yellow metal. Durable Goods Orders, released earlier today, showed a decline for the fourth consecutive month. As weakness in the manufacturing sector gains steam, more investors may become worried over the possibility of a recession coming. Not only that, but a slowing economy may also mean that the Fed is at or very close to the end of its tightening cycle. The Fed did raise interest rates again this week by 25 basis points, as expected, but also signaled it would not be hiking rates again any time soon.
The end of the current rate hiking cycle may not only provide investors a sense of relief, but it may also give them a degree of clarity that had been lacking for some time. This clarity may allow investors to make moves they otherwise would not and could put gold and other markets onto sustainable trajectories for the months ahead. If the Fed were to signal that they may see the need to start cutting rates again, look out. Gold and stocks could see a significant upside while the dollar gets clobbered. Whatever the case may be, the Fed and its plans for rates could hold the keys to higher gold and higher equities. For the time being, the $2000 level will act as an important resistance barrier for gold.
If the gold bulls can take out the $2000 level on a closing basis, the stage could be set for a rapid rally higher that could see gold back at all-time highs in a short period. If the bulls fail to take out this level, however, the bears could gather some strength and potentially drive the market lower to the $1900 level. The bears will not have anything of substance going until they take out $1800 on a closing basis. Within the market not far from previous all-time highs at this point, logic could suggest that a test of those highs may be seen before any significant downside is. Whatever downside does come along may not be enough to deter the bulls from taking the market higher over time. Any significant dips are likely to be bought aggressively, for the time being, and this may keep the metal from falling too far too fast.
The next several sessions may be critical for gold as it attacks the $2000 level. Given the current backdrop, however, the market could find reason to move higher and do so quickly if another bank runs into trouble or signs of contagion appear.