Gold Building Momentum
The gold market is seeing some upside today as the bulls look to distance the market from the $1800 level. The metal is moving higher today as risk appetite remains poor and as the dollar hits a four-week low. Crude oil prices may also be a contributing factor today as the price of oil rises while yields are fetching 2.815%. The bears may tire out rapidly at this rate and a short covering rally could be seen. Such a rally could easily take the price of gold beyond resistance at $1850 and could even drive the market to test resistance around the $1900 level.
Stocks have been against the ropes in recent weeks, although that may be difficult to see today. In early morning action, the benchmark Dow Jones Industrial Average is higher by over 500 points. Although today’s rally in equities may look impressive, it could prove to be nothing more than a relief rally in a larger downtrend. Stocks have been trending lower for some time now, and recently hit a 12-month low on the charts. With so many major issues weighing down risk appetite, including inflation, an aggressive Fed and the war in Ukraine, it is difficult to imagine a scenario in which the trend in stocks reverses course. Any downside pressure on equity markets may keep capital flowing into gold and precious metals, and the yellow metal may not see much more downside if inflows are robust.
Whether gold can sustain its upside today is another question. The metal has been hit hard in recent weeks by a stronger dollar, aggressive Fed and other factors that may make it less appealing to investors. The rising dollar has been a major factor for gold’s lack of upside, and as long as the currency is rising it is challenging to see a situation in which gold does the same. The dollar may finally be running out of gas, however, as numerous challenges remain for the currency regardless of how high the Fed may raise interest rates. Should the currency begin to trend lower and reverse course, it could set the stage for a significant rally in gold that could see the market retake key overhead resistance or beyond.
The bears are still in control on the daily chart. That control has been eroded a bit today, however, and if the bulls are able to muster further gains throughout the week, the trend may even be negated. The bulls need to first produce a close above $1850 and then take the $1900 level on a closing basis. The bears will target a close below $1800 and then the May lows at the $1785 level. Should these levels be taken above or below, it could set the trend for the metal for months to come. If the market is able to move higher this week and sustain those gains, it could again point to the bulls willingness to buy any significant dips and the technical edge may then belong to the bulls.