The gold market is seeing a respite from the recent selling today as key outside markets give the bulls reason to buy. The metal may also be seeing some benefit today from another red-hot inflation report that could keep it supported over the long-term. The yellow metal remains vulnerable to changes in inflation, Covid lockdowns and the war in Ukraine. For the time being, however, the bulls are trying to retake key support at the $1850 level and if they produce a close above this key target they could gain further momentum for a run towards the $1900 area.
In what is likely the most important data report of the week, the Consumer Price Index for April saw a rise of 8.3% year-over-year. Although it is a tad lower than the March gain of 8.5%, the report still suggests that inflation is a major problem. The report falls into the camp of the policy hawks who want to see aggressive interest rate hikes from the Federal Reserve to get inflation under control. Rising price pressures are typically bullish for hard assets like gold and bearish for paper assets like stocks. Time will tell if that proves to be the case this time around, but either way much work remains to be done to get price pressures under a degree of control.
Outside market action today sees stronger crude oil trading near $105 per barrel. The Dollar Index is weaker today after hitting recent multi-decade highs. Yields on the Ten Year Note are fetching around 3% today. The ongoing war in Ukraine is still showing no signs of letting up. Both sides seemingly believe they can make progress on the battlefield, and that has led to little to no negotiating off of it. Until there are clear signs of progress being made towards a peaceful end to the conflict, investors may steer clear of stocks and risk assets and lean more towards perceived safe havens such as gold. Although equities are sharply higher today, that could be nothing more than a relief rally as equity markets have been trending lower for some weeks now. Today’s stock market rally could, in fact, be sold into heavily in the days ahead.
The gold and other markets will also continue to await further action from the Fed. The central bank has said it intends to use all of the necessary tools to combat inflation. The battle could have a significant and negative impact on stocks, however, and the Fed could come under pressure to slow the pace of hikes if stocks and risk assets come under even more pressure. For the time being, the technical traders and momentum players may dictate market action to a large degree, however, as the market remains in no man’s land on the charts.
The bulls will target a close above $1900 while the bears will look to take out key support at the $1800 level.