The gold market is seeing some moderate selling pressure on Tuesday despite seeing gains earlier in the session. Spot gold prices have now fallen below key support at $1850, and if they close below this level it could set the stage for further downside in the days ahead as more longs throw in the towel. The market may be reacting to several inputs today, including commentary from Fed officials on what is a busy day for commentary.
New York Federal Reserve President John Williams reportedly said earlier today that he feels inflation is likely to return to a level of 2% in 2024. Williams began his commentary at the NABE/Bundesbank International Economic Symposium in Germany by stating that the Fed has all of the tools necessary to battle inflation, and that while difficult, the situation is not insurmountable. Williams also said he expects the Federal Reserve to move expeditiously to bring interest rates back to more normal levels over the course of the year. His comments about interest rates come nearly a week after the Federal Reserve raised the Fed Funds Rate by 50-basis points for the first time since 2000.
Williams is not the only Fed official speaking today. Other Fed personnel will also be commenting on the economy and their outlooks today. In an effort to build more credibility for the U.S. Central Bank, these officials are likely to echo Williams’s remarks, stating they believe the central bank has all the necessary tools and will use them accordingly to bring inflation under control. Faith in the Fed has been sorely lacking, after all, and anything its members can do to boost morale may be seen. Unfortunately for the Fed, it waited too long before taking action and is now firmly behind the inflationary curve. Not only that, but other issues at play may also affect global markets.
The ongoing war in Ukraine shows no signs of abating any time soon. The conflict could keep supply chains jammed up for even longer than expected and could add to already-problematic inflation. If the West were to get involved, either in the air or on the ground, it could send shockwaves of risk aversion through global markets and could make the Fed’s job even more challenging.
While Ukraine and Russia fight a battle of ideals, China is fighting a battle against Covid. China has gone so far as to lockdown major cities such as Shanghai and Beijing in order to try to prevent the spread of the virus. The more cities that get locked down and the longer they remain so, the more economic activity will suffer for the globe’s second-largest economy. This could, in turn, have a negative impact on the global economy and could force central banks to rethink their planned pace of rate hikes.
The gold market may remain on the defensive for the time being. If the market closes below the $1850 level today, look for further selling pressure in the sessions ahead. If the metal does rebound and close above $1850, look for some buying to enter the market this week and try to take prices back towards the $1900 area.