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The gold market is slightly higher in action on Friday as investors prepare for the long holiday weekend. A decline in the dollar, along with a slight decline in treasury yields, is giving investors reason to buy as the Memorial Day Holiday approaches. The threat of inflation, the war in Ukraine and other geopolitics may keep gold from falling any further. Stock market weakness may also provide gold with a degree of support. Despite stocks’ upside today, the equity markets remain in a downtrend that has been in place for several weeks now. Heightened volatility and significant sell-offs may be seen in the  months ahead.

The stock market could hold the keys to higher gold in the year ahead. For gold to fund a sustainable path higher to new all-time highs, it must outperform the stock market. The metal has done so, at times, throughout recent years, albeit never consistently or for very long. A real bull market for gold may occur when stocks are in a secular bear market. Although it may be too early to tell if stocks are now in a bear market, they are, without a doubt, coming very close. The next several months could see equities enter a secular bear market and if they do, gold could stand to benefit handsomely. The major question posed by such a scenario is whether the Fed decides to reverse course in the face of lower stocks.

A current bear market rally is likely already underway. This rally may keep stocks from falling much further in the months ahead and could allow the Fed to hike, as planned, in June and July. If the Fed should begin to question its policy path in the months ahead, however, it could set the stage for a massive rally in gold. Should the Fed decide to start easing policy once again, gold could see enough buying interest to take it well into fresh all-time high territory. For some analysts, it is not a question of “if” but rather “when.”

For the time being, the Fed appears intent on fighting inflation and staying the course to higher rates. The Fed recently raised rates by 50-basis points rather than 25 in a move that is anticipated to occur at the next two consecutive FOMC meetings. While unlikely, there has even been some talk of a 75-point rate hike by the Fed. Whatever the case may be, the Fed is likely to continue to take action and adopt a hard-line rhetoric concerning inflation. The question is: will it actually follow through from start to finish.

The gold bulls have put some significant distance between the market price and the $1800 level. The market has held support at the $1850 level for a few days now in what could be an encouraging sign for the bulls. The bulls will need to test $1900 in the days ahead, however, to maintain recent positive momentum. A failure to hold above the $1850 area could see the bears pounce and another test of the $1800 level could follow shortly thereafter.