The gold market had gotten the day off to a strong start, rising by several dollars per ounce. That initial strength quickly dissipated, however, once markets got the latest weekly jobless claims data. The weekly claims saw a moderate decline, and the decline of about 18,000 jobs put weekly claims below consensus estimates. Continuing jobless claims are now at a level not seen since 1970 in what may be viewed as a sign of economic strength. While the data took the wind out of gold’s sails in early action, the yellow metal has not fallen too far. In fact, any dips in gold are likely to be bought at this point, as the ongoing war in Ukraine and against inflation rage on.
Fed Chairman Jerome Powell will testify again today before lawmakers. Yesterday, Powell signaled that a 25-basis point rate hike was on the way and would be seen next month. While things can change, this likely puts an end to any debate over whether the Fed could hike rates by 50-basis points.
The war in Ukraine continues to have a significant market impact. Crude oil prices hit over $116 per barrel overnight, the highest level in over a dozen years. The dollar is also stronger today while the benchmark Ten-Year Note is seeing a yield of 1.854%. Market action points to ongoing uncertainty and traders as well as investors appear content playing it that way. Stocks are mixed in early action today as the VIX eases just slightly in early action. The gauge still reads over 30, however, and could have a lot of room to rise further if things deteriorate in Ukraine.
As the price of crude oil rises, the threat of an oil shock may also be on the rise. Traders and investors have thus far avoided Russian energy products in an effort to steer clear from any possible sanctions related troubles. In addition to this, OPEC has not signaled it would raise its quota-at least as of yet-and talks with Iran remain unresolved. The combination points to a troubling possibility of an oil shock. Tightening supplies may keep prices on the offensive in the weeks ahead. A major or sudden shortage, however, could fuel a price spike capable of crippling the economy. The threat of an oil shock comes at a very bad time, as people are already having to battle higher prices as inflation soars to levels not seen in decades.
The gold bulls will look to take prices beyond the February highs in the $1976 area. The bears will look for a decline below support at the $1850 level and then again at $1800. A move in either direction could be sustained and could see the market take off higher or lower. Of course, we feel right now that there are far more reasons for higher gold than lower, and as such will keep our eyes open for opportunities on the long side. Any dips seen in gold should be bought, barring a close below the levels mentioned above.