The gold market is seeing some corrective price bouncing following a recent sell-off that took the metal back below the $1800 level. As the ongoing market buzz continues to be worries over rising inflation, investors are still digesting last week’s more hawkish commentary from the Federal Reserve. The Fed’s hawkish comments were likely a main catalyst for the massive selling seen in gold last week.
Numerous markets and indicators are pointing to higher inflation down the road, although the benchmark 10-year treasury yield is not following suit today. The 10-year is now yielding 1.43%, a reading that is lower than the yield seen before the Fed’s remarks last week. Although the note may be giving investors a confusing clue, declining yields do not necessarily mean something is amiss. Yields could, in fact, continue their multi-week decline even if inflation continues to move higher.
In other pertinent news, the price of Bitcoin dropped by some 10% after China said that banks and payment institutions may not provide payment services for transactions involving cryptocurrencies. The latest move from China is seen as a big threat to Bitcoin and could keep any rallies under wraps as the currency looks to rebound from recent selling pressure that saw its value cut by nearly half.
The more that Bitcoin and other cryptos pull back, the better it may be for gold, however. The cryptos had been attaining a reputation as a store of value and competitor to gold in recent months. That competition may be anything but, however, after Bitcoin again demonstrated significant market volatility. Although Bitcoin and cryptos may feature some of the same positives as gold, they do not have the history nor the world recognition that gold has a store of value and protector of wealth. Gold has built such a reputation after hundreds of years of acting as such, while cryptos have only been around for a few years now. Gold may lack the upside price potential of cryptos, however, many who buy gold are not buying it for upside but rather as a hedge. This may make crypto’s upside potential irrelevant when compared to gold.
Despite Monday’s corrective price bounce in early am trade, the bears now have complete control of the daily price chart. Recent selling has seen proces decline well below the market’s 200-day moving average and the trend remains lower. Not only that, but prices have also dipped firmly below some key support levels, including the $1900 area. The bears may now target the $1700 level as their next conquest, while the bulls will need to first take out $1850. A close above $1850 could set the stage for the bulls to rechallenge the $1900 level.
Although gold was hit hard by the Federal Reserve commentary and hawkishness last week, the effects of that commentary are unlikely to last long-term. The Fed has not yet faced a real test, and the central bank may talk all it wants until such time as a test is faced. Last week’s commentary may prove to be nothing more than Fed “talk,” and the central bank may decide to stay the course in fear of upsetting the markets and fueling volatility.