The gold market did not do much on Monday. The spot market is lower in mid-afternoon action by less than $1 per ounce. The profit-taking comes as no surprise following the metal hitting an eight-month high last week. Also possibly a factor in today’s market action was a headline in a prominent financial newspaper that suggested the Fed would “ Set a milder course” on rate increases. The author of the article is a well-known reporter recognized for getting Fed members to speak with him directly. The next FOMC meeting is quickly approaching, and the markets are finding themselves questioning the Fed’s plans for the year ahead. Previously, it was widely thought the Fed would maintain its aggressive pace of rate hikes until the job was done. Now, however, inflation data has been showing some slowing that could give the Fed reason to think twice before hiking again aggressively.
The next rate hike will likely be only 25 basis points. Of more interest to the markets will be the Fed’s commentary and outlook. If the Fed signals it intends to slow the pace of hikes or even take a pause, gold and risk assets could get a major boost higher. If the Fed signals it plans on staying the course, however, it could be bearish for the metal and for risk assets and could send markets lower.
The gold bulls have done a good job in recent weeks taking the market higher. Whether the move up is sustainable is another question, however. The bulls have thus far been able to hold the market above the $1900 level, well above it in fact. If the bulls can maintain their recent bullish posture, the market could see a fresh wave of buyers enter, taking prices to the $2000 level in a short period. If the bears can produce a close below the $1900 level, then a push toward the $1800 level could be seen. To get anything of substance going, the bears need the market below the upside breakout point at $1700.
The gold market is highly dependent on the Fed currently and what the central bank has planned for 2023. Any clues provided by the Fed members may go a long way toward giving the market some sustainable fuel to drive it higher or lower. The path of least resistance remains higher for the time being. Any significant dips in gold may be bought aggressively until proven wrong. The gold market may also benefit from some other key factors that could potentially take it higher. These issues include the recent hitting of the debt ceiling, the war in Ukraine, the upcoming U.S. Presidential election, and more. Any of these issues could potentially move the gold market, although the Fed remains the primary catalyst for market movement.