Gold is lower today as the stock markets move higher. The Dow Jones Industrial Average is up nearly 200 points in early action Thursday as investors shake off some risk aversion and appear hungry to buy. Whether today’s rally is sustainable is another question entirely, however, as ongoing worries over the war in Ukraine and inflation take a bite out of sentiment. Stock charts are improving this week and that improved technical posture may weigh on gold as investors shy away from perceived safe haven assets. The party may not last long, however, as the war could take a bloodier turn in the days ahead and as inflation continues to run rampant.
The World Bank and IMF continue to hold meetings in Washington D.C. today. The central bankers are expected to sound increasingly hawkish regarding their monetary policies as the world grapples with price pressures. The globe could, in fact, be at the early stages of a massive tightening period that could see rates rise substantially. On the other hand, the central banks may also recognize the dangers posed by rising rates and may elect to take it easy on policy. The Fed and other central banks will be forced to choose. They will have to make a decision of whether to fight inflation aggressively at the risk of upsetting stock markets or letting inflation run higher while keeping the investing public appeased. Either way, markets could have a tough time ahead and volatility may be heightened for an extended period of time.
Possibly giving gold a boost today, the crude oil market is firmer while the dollar is weaker. Higher crude oil prices may bolster the inflation narrative and lead to buying of assets such as gold that may preserve purchasing power. The dollar weakness is also a gold positive as it makes the metal relatively less expensive for foreign buyers. Recent dollar strength has likely been a major factor in gold’s lack of upside follow through. How much the currency may have left in the tank is the subject of debate, however, as massive deficits and other issues may keep the dollar from rising much further. At the end of the day, the gold market may not need much help from outside markets as it will likely move due to risk aversion and safe haven buying.
Of note today is gold’s decline below the $1950 level. If prices close today below this support level, the bears could have something to work with and could look to extend the decline towards the $1900 area. A close below $1900 would almost certainly attract more selling interest and might fuel a decline to $1850. The bulls still need to produce a close above resistance at the $2000 level to build momentum.