The gold market is solidly lower in early action Monday after being quite a bit higher earlier in the session. The yellow metal had hit a 3.5 month high before the bears took control today, and the overall trajectory of the market appears positive. The short-term technical advantage seen in the gold market could encourage further chart-based buyers to step in as well, possibly providing some key support for the metal as it looks to retake the $1800 level. Now at $1775 and change, the bulls have some work to do to get the market above this key level on a closing basis.
Markets may still be digesting last week’s stronger-than-expected jobs report. The strong jobs data could keep the Fed on its current path, tightening rates aggressively as it goes. This is in sharp contrast to some recent comments from Fed Chief Jerome Powell, who stated the Fed did not want to overtighten and be forced to cut rates quickly. Powell effectively alluded to a slower pace of interest rate hikes, which the markets view as dovish. Powell was also careful to suggest that the Fed will keep its foot on the gas until the job is done and that rates may need to remain elevated for some time to calm inflationary pressures. The dovishness of Powell’s comments boosted gold last week, and any further signs of the Fed taking a pause or even reversing course on rates could send the yellow metal sharply higher.
The gold bulls now have the advantage on the daily charts. This could make today’s decline an attractive buying opportunity for longs looking to get into the market. More than likely, however, is that more longs may look to enter the market once it closes above the $1800 level. This level is a key technical test for the market, and the bulls may want to see it hold before getting overly excited.
Over the weekend, OPEC did not make any changes to its oil output. The oil cartel elected to leave its collective output unchanged for the time being. Although crude oil prices remain elevated at $82 per barrel, they are not overly elevated and do not appear to be a major source of economic concern at current levels. Likewise, oil does not appear to be much of a factor for gold at current price levels.
The gold market has already failed to hold the $1800 level once. If the bulls are unable to launch a more sustainable assault on this key level, the bears could take further control of the market and drive prices lower. This could equate to another failed gold breakout and could frustrate the bulls harshly. If they are able to take out this level in convincing fashion, however, the sky’s the limit on the upside. The market could quickly move back towards previous all-time highs or even beyond. It may all come down to the Fed, however, and what the central bank has planned for early 2023.