Blog

The gold market is lower in late morning trade Friday as a stronger dollar takes a toll. The yellow metal is now near the $1750 level as the bears have distanced the market from the key $1800 mark. The pullback in prices should not come as much of a surprise, however, following gold’s recent upside trajectory.

The battle between key technical levels in gold may continue for the time being. The bears are looking to produce a close below $1700 while the bulls need a close above $1800.  Now right in the middle of these two levels, the yellow metal could remain stuck in neutral for a few weeks until the next FOMC meeting in September.

The path the Fed chooses to take next month may determine gold’s fortunes for the months ahead. The big question is whether the Fed will continue its inflation fight or if it will elect to abandon the inflation battle. Following the latest FOMC meeting, Chairman Jerome Powell seemed to suggest the Fed could decide to pivot away from the inflation fight. His more dovish commentary was seen as being exactly that. Many analysts felt Powell was laying the groundwork for a Fed pivot away from inflation in the months ahead, possibly as soon as next month.

Powell may not decide to give up the inflation battle, however, and could keep the Fed hiking rates aggressively through the rest of the year. Should Powell’s rhetoric sound more hawkish next month, the gold market could potentially struggle. Should Powell sound more dovish, however, it could give gold investors a green light to buy.

While there may be more hope for a dovish Fed next month following the last meeting, the Fed may be unlikely to reverse course at this point. The central bank has previously indicated it believes inflation to be the biggest economic risk and that it does not want to allow price pressures to become entrenched. The Fed seems willing to let the economy enter recession (it it hasn’t already) and appears far more concerned about inflation than a few quarters of slow to zero growth. This could keep the central bank raising rates aggressively through the end of the year and possibly longer.

The gold market could remain sideways until more is known about the Fed’s plans. The $1700 and $1800 levels remain key. Whichever side is violated first, on a closing basis, may indicate how gold could run in the months ahead. As the summer doldrums come to a close in the next few weeks, higher volumes may allow for gold to make a sustainable move higher or lower. Volumes will be back by the time the Fed next meets, and that meeting could dictate gold’s fortunes for the months ahead.

The longer the metal spends between the $1700 and $1800 levels, the more it could potentially move once it breaks out of the recent range. An upside breakout above $1800, for example, could send the market rapidly back to all-time highs or well beyond.