Down But Far From Out
The gold market has had a tough day. Prices for gold fell by over $25 per ounce at the lows of the session as investor appetite for risk is higher today. Lower crude oil prices and higher yields are not doing the metal any favors, either. The bulls have stepped in to buy the earlier dip, however, and while prices are still lower on the day they are now well off the session lows established earlier in the day.
A lack of any major developments in the Russian/Ukrainian war is likely having a bearish impact on the yellow metal. Profit taking and weak long liquidation in gold futures also played a role in today’s decline. On a slightly bullish note, however, the market did see some buyers enter on the dip, taking spot prices back up and now standing down less than $5 per ounce on the day.
There have reportedly been some encouraging talks between Russian and Ukrainian authorities that could eventually lead to a ceasefire. Hopes for a ceasefire are fueling some appetite for risk today, as stock indexes are higher at mid-day. Gold futures hit a five-week low earlier in the session today and the bulls’ control of the daily chart is fading fast. The metal is now in a multi-week downtrend on the daily timeframe. The bulls will now target last week’s highs around $1967 while the bears will seek a decline under $1850.
Barring any new developments in the war, the markets will focus their attention on inflation and monetary policy. The Fed raised the Fed Funds rate by 25-basis points last week, and is now expected to hike another six times over the course of the year. While multiple rate hikes are now no surprise, investors will ponder whether the Fed elects to hike rates by 50-basis points. A 50-point rate hike would be the first in two decades and could send a clear signal to markets that the central bank is looking to get inflation under control. Of course, the market issues presented by Covid are not gone and could even be headed into worse territory yet again. China has recently implemented rolling blackouts in some areas, with the major city of Shanghai being one of them. These blackouts have stalled some commodity prices as demand may suffer, and the issue may do nothing for inflation but to make it possibly worse.
The gold market will pay close attention to these issues and could react significantly to any unexpected changes. The market remains stuck in no man’s land currently, and until prices breakout to the upside or breakdown, investors may be more content sitting on the sidelines. A large number of investors taking a wait and see approach could, however, ignite the market’s engines if or when it makes a move above resistance or below support. For the time being, the market remains in “buy the dips” mode until proven otherwise and any major sell-offs should be viewed with a high degree of skepticism.