The gold market was down on Monday as bearish outside market action and the looming FOMC meeting took a toll. The metal has been hit by a trio of bearish outside markets on Monday, as the dollar moved higher, treasury yields surged and crude oil declined. The market was quiet on Monday as investors await the latest Fed decision on rates and as key inflationary data is awaited.
The FOMC meeting is the highlight of the trading week. The meeting b begins on Tuesday and concludes on Wednesday. It is widely expected that the Fed will take a pause in its rate hiking cycle. Last week’s jobs data may boost the thinking that the Fed will continue with another rate hike this week. Either way, the market will be very interested in hearing the Fed’s thoughts and what it sees ahead for rates and the economy. Key inflationary reports are also set for release on Tuesday and Wednesday. The latest readings of the Consumer Price Index (CPI) and the Producer Price Index (PPI) may provide solid clues about inflation and whether it is continuing to ease. An easing of these data points may allow the Fed more room to pause on further rate hikes. Stronger-than-expected data points may do the opposite, however, and could give the Fed reason to continue hiking rates aggressively.
The gold bulls have still been unable to produce a close above the $2,000 level in recent weeks. This level is the next major bullish target and could give the bulls more reason to take the market higher if breached. The bulls remain in control of the market during this period of choppy trade, but that control has been weakened significantly in recent weeks. The bears need to take the market below the May lows around $1,949 on a closing basis, followed by a close below the $1,900 level. Failure to do so may result in ongoing choppy price action before the bulls are able to lift the market in a sustainable fashion.
Signs of cooler inflation this week may not only affect the gold market, but could also have a significant impact on stocks. If price pressures are continuing to cool, hopes for Fed rate reversal may increase. This could, in turn, provide equity markets with a solid boost. Hotter inflation may have the opposite effect, however, and could drive the stock bears into action. This week’s inflation data will also form opinions about the Fed’s plans in the months ahead. A more dovish outlook and Fed could see equity markets rally while an increasingly hawkish Fed could have the opposite effect. Investors will be looking for any clues either way about the Fed’s plans and what it sees for the economy in the months ahead.
The longer that gold spends sideways, the more bullish it may become. The bears are likely feeling far more pressure to move the market compared to the bulls, and a lack of a significant leg lower could set the stage for a bullish rally in the weeks to come.