Downside Momentum Building
The gold market is lower again today as the bears see some momentum building. While gold is well above the lows of the session, spot prices are still down sharply. Gold is lower on the day by over $21 per ounce currently after being lower by well over $30 per ounce earlier in the session. A significant decline in the price of crude oil as well as a deteriorating chart posture are both bearish elements for the market today. As discussed in previous posts, it seems as if maximum anxiety has already been reached regarding the war in Ukraine.
The Russian/Ukraine war continues to rage on. Continuing talks between Russia and Ukraine may be bearing some fruit, however. Talks between the U.S. and China yesterday were also said to be constructive. A sudden ceasefire or relaxation of tensions across the globe could move markets substantially. Any clues as to a ceasefire approaching could reverse recent trends which saw stocks declining and gold rising.
Against the current geopolitical backdrop, investors are also preparing for the conclusion of the latest Fed meeting taking place today and ending tomorrow. It is widely expected that the central bank will raise the Fed Funds rate by 25-basis points in what will almost certainly be an opening salvo for higher interest rates. The Fed is expected to hike rates several more times in 2022. While the Fed has penciled in three more rate hikes for the year, many believe the Fed will be forced to hike rates five or more times in order to get a handle on inflation. This leaves the Fed in a perplexing situation. The more it hikes rates, the greater the risk of a recession. The central bank will have to choose, therefore, between rampant runaway inflation or a sharply slower economy.
All signs currently point to the Fed accepting an economic slowdown or even recession. The central bank appears to have backed itself into a corner from which there is no painless escape, and getting itself free from this corner may take considerable time and effort. The steps involved are also likely to be painful. Stocks do not like higher rates and equity markets could, therefore, continue their recent descent. Rising volatility may also be seen across risk assets. That volatility could, however, see more capital flowing into the gold market as investors seek out its perceived safety.
In the meantime, the gold market may be vulnerable to further developments in Eastern Europe as well as any new information on the inflation front. Despite gold’s decline of nearly $100 per ounce in recent days, the market is still controlled by the bulls on the daily timeframe. Bullish control of the market is fading quickly, however, and if the bulls do not step in to buy soon, the bears could wrestle control on the daily chart away from them. $2000 on the upside is the next target for the bulls, while the bears will look for a close below support at $1900 on the downside.