The gold market hit a fresh nine-month high earlier Tuesday before pulling back. The metal is being powered by positive chart structures, safe-haven demand and geopolitical risks as it continues to maintain trade above the $1900 level. Despite having reversed course this morning and now trading about $9 per ounce lower on the session, the path of least resistance for gold remains sideways to higher. The bears have a lot to prove if they want to reverse the market’s course over the long-term. With no clues about a market top having been reached or even close, the bulls will likely continue to buy on any significant dips within the market.
As the next FOMC meeting rapidly approaches, markets may get increasingly jittery over what the Fed may or may not do. It is widely expected that the central bank will hike rates again. This hike, however, will likely only be for 25 points rather than 50 or 75. Recent inflation data has pointed to a slowdown in price pressures, although there is still much work that needs to be done. The slowing in the data may give the Fed more wiggle room, however, as to how fast it needs to raise rates to keep inflation from increasing further. With some more room to work with, the Fed may be increasingly likely to take more of a wait-and-see approach to policy.
The Fed and monetary policy may be the primary drivers for gold in the months ahead, but they are not the only market catalysts. Several other issues, including sovereign debt, the upcoming Presidential election and the war in Ukraine may also all factor into gold’s fortunes. The political scene in the U.S. may become especially heated as the debt ceiling is being challenged yet again. The U.S. Treasury Department has bought leaders a little bit of time through some extraordinary measures, but those measures will soon expire and the nation could find itself unable to pay its bills if a deal is not struck between the two major political parties.
As the war in Ukraine rages on, there have been little to no signs of a slowdown. Worries now have gone from Russia to China as concerns mount that it could potentially look to invade Taiwan sometime soon. A Chinese invasion of Taiwan would almost certainly invite U.S. involvement, and such a scenario could very well lead to the Third World War beginning. As the globe waits to see when Russia may pull out of Ukraine and if China does invade Taiwan, investors are likely to keep gold from falling too far. With so many potential issues in the mix, gold may remain fairly buoyant until more clarity is seen. For the time being, that may keep the path of least resistance in gold higher and could keep willing buyers jumping in on any significant dips.