The gold market is higher in mid-morning trade Wednesday as crude oil sees some upside. The metals are also seeing some corrective bouncing after being pushed to five-week lows yesterday. The strong rebound in crude oil prices from a low this week of less than $100 per barrel is also lifting gold and other commodities.
The gold market is dealing with three major elements currently as are other markets: The Russian/Ukrainian war, rising global inflation and new rolling lockdowns in China due to Covid. Despite the presence of these three major issues, stocks have continued to climb higher and are now at nine-week highs. Encouraging peace talks between Russia and Ukraine may be a major factor in equity resilience, although it would be far too premature to suggest the war will be ending soon. Of course, the market’s ability to shrug off the conflict may only last for so long and any escalation in hostilities may eventually put a major dent into stocks and risk assets.
Gold has been largely affected by outside market action and that is likely to continue in the months ahead. Crude oil has climbed back above the $100 per barrel mark and is sitting at about $106 per barrel today. OPEC is set to meet tomorrow to discuss production from May forward and the meeting could be market moving. Any major changes in production quotes could set oil prices on a course higher. A large increase in production could also be implemented, possibly dragging oil prices lower. Whatever the cartel decides to do, oil prices could see heightened volatility in the days ahead. That volatility could also spread to other commodity markets and could even affect the gold market.
The dollar has also been a major player in gold’s price action. The dollar is weaker today, however, and could see further selling if recent lows are broken. The dollar had been trending higher for some time but has seemingly run out of gas. Any further dollar weakness may give gold a boost as it makes the metal relatively less expensive for foreign buyers.
Rising yields have also been the topic of much discussion in recent months. The benchmark 10-year Note is currently fetching a yield of 2.38%. Yesterday, the yields of 2 and 10-year treasuries inverted, albeit briefly, in what many believe is a sign of a coming recession. Yield spreads will continue to be closely monitored, and any inversions in the curve may fuel a degree of investor panic as recession fears intensify.
The gold bulls are still in control on the daily chart. That control has come under some significant challenge in recent days, however, and the bulls appear to be hanging on by a thread. Last week’s highs around $1967 remain the next target for the bulls, while the bears will look to produce a close below the $1850 level. Until one of these areas is breached, the market remains in what may be viewed as no man’s land.