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The gold bulls have done a good job, thus far, of holding recent gains for the metal. The yellow metal has held above the key $1800 level for a few days now, and the bulls have even put some more distance between that level and current prices. The question is whether the bulls can maintain the recent upside and prevent the market from declining back below the $1800 level. Gold is seeing some bullish interest today as the dollar weakens. The gold market also has an inviting chart structure currently that is attracting momentum and technical buyers.

This week, the markets are devoid of fresh economic data or any Fed talk. The week between Christmas and New Years is historically quiet for the markets, as few investors are screen watching this week. Once the New Year Holiday is over, however, investors will quickly return to the markets and price movements will begin again in earnest. How the gold market will move once the investing public is back remains to be seen. One thing may be for sure, however, and that is that the Fed’s plans are likely to be a major contributing factor for gold in the year ahead. The Fed has already slowed its pace of rate hikes, electing to raise rates by 50 rather than 75 basis points in December. How much the Fed will raise rates at its next meeting is the subject of debate. While another 75 point hike cannot be ruled out, a 50 or even 25 point move may be far more likely at this point.

The Fed has suggested that rates may need to stay higher for longer. Taking a wait-and-see approach to see how its hikes are affecting inflation, the Fed may be content with smaller increases in the Fed Funds Rate and allowing more time to pass by to judge whether its rate hikes have been effective. Recent inflationary data suggests the Fed is having an impact on price pressures, as some key data points came in less- than-expected. While an annual inflation rate of 7.1% is still no laughing matter, it is better than a reading of 7.3%. If inflation data continues to trend lower in the months ahead, the Fed could see fit to take a pause from its rate hikes. At some point, the central bank may even suggest that it will begin cutting rates to boost the economy. While this is unlikely to occur anytime soon, it could come sooner-than-expected if worries over a recession increase further or if recession appears imminent.

For the weeks ahead, markets will attempt to become more in tune with the Fed and its plans for the year. The next several months or first half of 2023 will not likely see any major changes in Fed stance or policy. As the second half of the year approaches, however, calls for the Fed to begin easing rates may increase and even pressure the central bank. Stocks, gold and risk assets may all see limited upside in the months ahead until the Fed signals a reversal on rates is forthcoming. Once that signal is given, however, the sky’s the limit for gold and stocks may also return to all-time high territory.