The gold market is off to a slow start Wednesday as the trading week nears the halfway point. Spot gold is slightly lower in early morning action, trading down some $5.40 per ounce. The decline has not taken the yellow metal far from the $1800 level, however, and the bulls are still very much within striking distance of taking out a key level of technical resistance.
Stocks and investor appetite remain well oiled coming into today and hunger for risk remains elevated. Third quarter earnings reports have thus far not disappointed as the majority of them are exceeding expectations. Whether such good earnings will be sustained is another question entirely, however, and may be a source of concern for equity bulls.
Some possible bumps have developed and are on the horizon now. The world’s second largest economy, China, has already seen its economy slow significantly. The globe’s second largest economy is dealing with several major issues that have the potential to keep its growth under wraps. The ongoing energy crisis, for one, could keep China from being able to manufacture certain components and parts due to the lack of raw materials. This not only affects China but can also affect the nations that China supplies with these materials. In addition to the energy shortage, China is also dealing with a resurgence of Covid-19 cases in some regions that may also have a significant impact on productivity. The country is also having to deal with an overheated housing market and other issues that could force its central bank to tighten policy and reign in the supply of money.
Although U.S./Chinese relations have been good for the most part, tensions have been ratcheted up this week. The U.S. recently banned Chinese telecommunications giant, China Telecom, from doing business in the U.S. There may be more to come on this story, and it does have the potential to set off a tit for tat showdown between the world’s first and second largest economies.
The price of gold is in a month old uptrend on the daily chart. The bulls are in control, but will need to extend the recent rally soon in order to stay in control. The $1800 level remains an important chart point. Resistance in the mid-1830s may be even more important at this point, however. If the bulls are able to take this level out on a closing basis, it could set the stage for additional buyers to enter the market and for prices
to rise further. A lack of a rally above this level, on the other hand, could pave the way for the bears to take over. If the market tries and fails to move higher once again, it could signal an overall weakness for the bears to seize and take advantage of. The first major target on the downside is $1750. A breakdown below this level, on a closing basis, would almost certainly point to more downside ahead and a significant leg lower.