The gold market is seeing some solid selling pressure in early action Friday. Just as gold rallied Wednesday as the dollar declined and yields stumbled, the gold market is today being sold off as the dollar and yields rebound. With few outside developments to drive the gold market, investors have been focused on its key outside markets in recent action. The dollar and treasury yields have both been major factors for price action in the gold market and will likely continue to act as such for the foreseeable future.
The Fed is set to meet next week, and at that point the gold market may have more to go on. It is widely expected that the Fed will implement another 75-basis point rate hike next week, its fourth in a row. What investors may be more interested in, however, is the central bank’s commentary. While the Fed will almost certainly hike rates again in December to finish the year, that hike could be smaller than recent hikes have been. A 50-point hike to end the year could potentially send investors a message that the Fed may take an increasingly dovish approach to policy in the year ahead.
The gold market may also be affected in the weeks ahead by global events. The war in Ukraine is still raging on, and the threat of a Chinese invasion of Taiwan appears to be on the rise. Should another war break out somewhere in Asia or elsewhere in the world, investors may flock to perceived safe haven assets such as gold. The war in Ukraine has been fairly quiet for some weeks now. That quiet can turn to noise and turn quickly, however, if things change.
The gold bulls may need to keep waiting for the Fed and its plans for early next year. The central bank has, thus far, stuck to its guns and continued hiking rates aggressively. While it is extremely unlikely for the Fed to adjust its policy or goals this year, early next year could provide the central bank an opportunity to take its foot off the gas pedal and take a pause from hiking rates. Not only could the Fed elect to take a wait-and-see approach, it could even begin to start easing rates again if the economy has slowed down to a dangerous level. Although next year may sound like quite a way off, it is not. 2022 has only two months remaining and then 2023 will begin. Waiting until next year could also allow the Fed to preserve some sense of credibility as it may look foolish to make changes now after saying time and time again that it would stay the course until the job is done.
Gold may remain in a range for the next several weeks until more is known about the Fed’s plans for next year. The $1600 and $1700 levels are key technical targets for the bulls and bears. If either level is breached, on a closing basis, the market could potentially continue to move in that direction.