The gold market is off of its highs of the session in mid-afternoon action Tuesday but is still above the key $2,000 per ounce level. The metal is now struggling to hold above this key level, however and could even finish below it at the end of the day. A failure by the bulls to maintain the rally above this area could result in a downdraft for the market as the bears could become increasingly encouraged. If the bulls can hang on, it could spell more upside for the yellow metal as momentum players and others see it as a sign of strength and look to get involved.
The Federal Reserve minutes from the most recent November meeting showed the Fed is in no hurry to begin easing interest rates. The Fed does not seem to be in a hurry to raise rates either, however, and suggested that rates are likely to stay at current levels for longer to battle inflation. The Fed has brought inflation down in recent months through its actions, but inflation is still well beyond the central bank’s desired target of 2% annualized. Keeping rates around current levels may eventually bring price pressures down to normal levels, but it is unclear exactly how long that could take. Given how inflation has remained robust despite an aggressive Fed over the last year or two, it could be some time before price pressures approach the desired target level.
The rating committee did acknowledge what it sees as growing risks to the economy. A high degree of uncertainty surrounding the economic outlook was noted, and that uncertainty may keep the Fed from hiking rates even further in the months ahead regardless of how inflation behaves. The economy could potentially enter recession territory if things do not change in the months ahead, and it is unknown how the Fed might react should the economy take a drastic downturn. This may lead some investors to think that lower rates could be seen, but the Fed could also elect to hold strong and maintain its tighter bias towards rates.
The gold market may also be affected by the two wars currently underway. The Israeli/Hamas war and the Russian/Ukrainian wars are both raging, with little fresh news to report on. Both conflicts could potentially lead to much larger conflicts, however, for different reasons. The Israeli/Hamas war could drag other players into it, such as Iran. Iranian involvement would almost certainly invite the U.S. to get involved as well. This could lead to a third world war. Discussion of nuclear weapons usage has been on the rise by Russia and others. If Russia were to use a nuclear weapon against Ukraine, it could open up a whole new level of violence and anxiety surrounding the war. The use of such weapons could also invite other nations to use these weapons of mass destruction and a nuclear war could break out, destroying much life and land in the process.