The gold market is higher in mid-day action Thursday as the bulls hold their ground ahead of tomorrow’s inflation data. The bulls are taking advantage of the improved chart structure, which is inviting traders into the long side of the market, as well as improving risk appetite. The lessening of strict Covid-19 restrictions in China may also be playing a big role in gold’s upside this week. Investors are now preparing for tomorrow’s PPI data. The Producer Price Index is expected to show a .2% rise from October, the same amount it rose in the previous report.
If the PPI report comes out as expected, markets may pay it little attention. If it comes out hotter than anticipated, stocks could be sold off again and investors could flock to gold and perceived safe haven asset classes. If the inflation data is weaker-than-expected, stocks could rally and gold could find itself under pressure. At this point, however, gold could also possibly rise as less inflation may make it easier for the Fed to hold off on raising rates aggressively in the months ahead. Whether the report misses or exceeds expectations, gold may now be in a situation in which it can rise.
In addition to the inflation data tomorrow, investors will also be watching for any new developments in the Fed’s thinking. Jerome Powell recently suggested the Fed was ready to slow the pace of interest rate hikes. He also, however, suggested that rates might need to remain elevated at higher levels for longer to get inflation under control. Powell said the Fed does not want to be forced to start cutting rates soon and wants to get the
job done on inflation. Despite this, his recent remarks fell decidedly into the dovish policy camp, providing both stocks and gold a boost in the process. As December continues to roll by, markets may become increasingly lackluster as trading volumes dry up further. The gold market may be content with where it is at right now to end the year. And any sustainable move up or down may not be seen until early 2023.
In the meantime the bulls will look to produce a close above the $1800 level. This key technical level could set the stage for a sustained move higher in gold and may attract more longs into the market. The bears, on the other hand, will look to produce a close back below the $1700 level to get the bearish party going. Odds right now favor a move higher, and with the market already close to $1800, a test of this level could be seen any day now. Gold is now in a five-week old uptrend on the daily chart, so any dips in the metal may be aggressively bought until proven otherwise.
The market may take its cues in the weeks ahead from the dollar, crude oil market and the Fed. Any signs of the Fed slowing down or reversing course may be bullish for gold.