The gold market is struggling again on Wednesday as the bulls appear quick to bale on positions. A rebound today for both the dollar and treasury yields are likely the main issues affecting gold’s decline today. The selling in gold today comes as investors await the latest FOMC meeting minutes due for release this afternoon.
Today’s meeting minutes could provide markets with important clues about the Fed’s plans and outlook on inflation. Investors will pay close attention to the minutes for clues regarding the central bank’s plans for raising rates further, including the amount and pace of further rate hikes. The Fed has previously suggested that it will use all of the tools in its arsenal to get inflation under control. It further suggested that it would not stop until price pressures were brought under control. The Fed has seemingly made the choice between combating inflation and allowing equity markets to run higher. As the Fed battles inflation through rate hikes or other methods, stocks and risk assets could see ongoing volatility and selling.
The Fed is, despite recent action, well behind the inflation curve. The central bank would need to hike rates and hike them aggressively, now, to be able to get rates to neutral. Until the Fed takes such action, inflation is quite likely to remain out of control. The question for investors now may be whether the Fed has the guts to stick it out. Although the Fed has stated that it will raise rates as high as necessary and do what needs to be done to meet its objective, doubts remain. The Fed could become increasingly influenced by lower stock markets and politicians. The lower equity markets go, the more complaining the Fed is likely to hear. If the Fed were to reverse course or stop hiking interest rates, the results could be disastrous. The economy is already on its way into a period of stagflation, and a full-blown recession is a legitimate risk. One wrong move from the Fed could put the economy into a very bad place and the Fed is not known for always doing the right thing. This possibility may keep stock investors leaving while looking to put capital to work elsewhere.
The gold bears are still in control on the daily chart. The bulls have been ankle to hold the $1850 for a bit now, however, and that may be viewed as a positive. The bears will continue to look to produce a close below the $1800 level. The bulls are looking to maintain trade above $1850 and to produce a close above the $1900 level. Until they are able to do so, the bull camp is unlikely to get overly excited and the market may remain vulnerable to another round of selling. If the bulls are able to take prices higher, it could prove that the recent downside has been nothing more than a minor correction within a larger trend higher. In this case, the bulls may be able to challenge and overtake previous all-time highs rather quickly.