The gold market is moderately higher in early action Thursday as the latest reading of inflation remains stubbornly high. The yellow metal is moving up as stocks show more weakness and as crude oil declines while the dollar strengthens. The Biden Administration has been discussing releasing crude from the Strategic Petroleum Reserve to the tune of some 1 million barrels per day for a total release of some 180 million barrels. The OPEC cartel is meeting today to discuss their production going forward, and changes to production levels could potentially be seen from May going forward.
While the crude oil market is certain oy playing a role in gold’s fortunes, the dollar is also an important outside player. Today, the dollar is higher on the session and since trending higher throughout February and much of March, the currency has been sideways to lower. The dollar has once again bounced off of the 98 level, however, in what some may view as a bullish sign. A breakdown below the 98 level on a closing basis could set the stage for a sharp decline further, possibly seeing the currency fall to 96 before finding some solid support. Any weakness in the dollar is likely to have a strong benefit for gold as it makes the metal relatively less expensive for foreign buyers.
Of course, in addition to the crude market and the dollar, inflation also remains the subject of much debate and a major problem for global markets. A key inflation gauge monitored by the Fed saw a rise of 6.4% in February for a 40-year high. Stripping out the volatile food and energy markets, core inflation still hit a rise of 5.4% from the same period 12 months earlier. Strong consumer demand has combined with shortages of goods and supplies to fuel the sharpest rise in inflation in four decades. As if these figures were not bad enough, they will almost certainly worsen in the months ahead as these readings did not even factor in the Russian invasion of Ukraine.
As inflation squeezes American wallets, consumer spending is likely to fall. Consumers reportedly increased their spending in February by a skinny .2%, far below the rise of 2.7% seen in January. Adjusted for inflation, spending actually saw a decline of .4% last month and further declines could push the U.S. into economic recession. A brief inversion of the yield curve this week could also point to a looming recession, and fears over a major economic slowdown could fuel stock market volatility for months to come.
Spot gold is up nearly $7 per ounce in early action today at $1939.60. The bulls have their work cut out for them, as they will need to produce a close above resistance at the $2000 level before anyone gets overly excited. The bears, on the other hand, are still trying to take prices lower to produce a close below the $1850 level. This seems unlikely, however, given how dips have been bought thus far.