The gold market was stronger on Monday as the bulls took advantage of the weakness in the dollar. Stronger crude oil prices also gave gold a boost as the yellow metal hit a fresh seven-month high. A bullish chart posture is also helping gold today as more and more momentum traders and short-term players enter the market on the long side. Appetite for risk is a little keener today as investors digest Friday’s goldilocks jobs report. The non-farm payroll data suggested that the economy may not, in fact, enter a recession this year but could, rather, find a soft landing. The report may also give the Fed something to think about before raising rates again as it did not show the necessity to raise rates aggressively.
Investors are also feeling better about China and the opening up of the country following months of Covid closures. As China reopens its borders, prospects for the global economy in 2023 may improve significantly. This improved economic outlook could mean increased demand for metals and higher potential prices. Stocks were firmly higher for much of the day before decking rapidly in afternoon trade. The S&P 500 and Nasdaq have held into gains in late afternoon trade. The Dow has declined firmly into negative territory, however, down by some 60 points in the final hour of trade.
Monday’s gains have put gold firmly within striking distance of the next key technical barrier at $1900. With spot gold prices now over $1870, the market is within a day’s upside of reaching and testing this key upside level. If the bulls are able to produce a close above $1900, the market may find more buyers jumping in and some ongoing upside. A failure by the bulls to take this level out, could, however, set the stage for a downdraft in the market. The bears need to produce a close below the $1800 level to get anything going. If able to do so, they would then target the upside breakout level at $1700. A breakdown below this level could negate recent bullishness and could see the metal decline all the way to $1500 or so before finding more solid footing.
The gold market will likely find itself in a sideways pattern for some time until more is known about the Fed’s intentions for the year ahead. The Fed has already signaled it intends to take a slower approach to rate hikes, but how much slower is debatable. The Fed has also stated that rates may need to remain higher for longer. Exactly how high and for how long is also a question being considered by investors. With the terminal rate likely to exceed the 5% level this year, markets are wondering how long such a rate may be necessary and tolerated by markets. If the risk of recession increases or remains intact, the Fed may want to be especially careful about how high it raises rates and how long it leaves them there. The gold market will be listening and may adjust its path based on any clues or commentary provided by the central bank.