The gold market is off to a poor start Thursday as prices have seen a sharp decline. As of this post, spot gold prices have now declined over $17 per ounce, putting them below the key $1800 level at $1796. U.S. Q3 GDP rose more-than-expected today, handily beating expectations which were calling for a reading of 2.9%. The reading of 3.2 was a major beat and could give the Fed much to think about in the weeks ahead. The report highlighted not only strong economic activity during the summer months, but also showed inflation remaining persistently strong. The third-quarter Price Index rose 4.4% while estimates were looking for a rise of 4.3%. Core inflation rose 4.7% for the quarter, a tick higher than the estimates of 4.6%.
With the third-quarter data coming in better-than-expected, some investors may begin to ask if a recession is still on the table in the months ahead. Despite this strong showing for Q3 data, it is unlikely to sway any minds about the potential for a recession. Investors are likely to remain quite concerned about a major slowdown if the Fed continues to raise rates, regardless of how much it hikes on a per-meeting basis. The Fed raised rates by 50 basis points last week, and has said it feels rates need to stay higher for longer. The higher for longer mentality may keep investors on edge and could keep any further upside in gold limited.
With central bank action done for 2022, it will be several weeks before markets get any fresh data from them. Once the U.S. Fed does meet again, however, markets will pay very close attention to its commentary afterwards. Investors are looking for any clues or a signal as to when the Fed could not only halt its rate raising policy but when it may start to cut rates again. The longer it takes for the Fed to reach that point, the more volatility and selling may be seen across asset classes. Anything said by the Fed that even remotely points in that direction may be viewed as being dovish, however, and could fuel a rally in both stocks and gold.
With little to no further data until the new year begins, the gold and other markets may find themselves trading primarily sideways. The gold bulls will need to retake the $1800 level on a closing basis to keep the recent rally going. If the bears are able to produce a close below this key level, more bulls may throw in the towel and more selling pressure may be seen. This could potentially take the market all the way back down to its recent breakout point of $1700. A move below that level would spell real trouble for the bulls, as there may be little to stop the decline in price until the market reaches $1500 or so. Such a move lower may be very unlikely at this point, however, as the long-term bullish thesis for gold remains intact.