The gold market did not see much bullish action after the weekend’s events in Russia. Spot gold is up by a few bucks per ounce in early afternoon action and any haven demand for the metal could be characterized as mild. The aborted insurrection in Russia over the weekend has raised some key concerns, including calling into question the stability of the nation’s armed forces and its leadership. As a nuclear power, any signs of a revolt in Russia could be market-moving and could cause serious anxiety all over the globe. President Putin appears to be seeing his once-powerful authoritarian grip on Russia loosening significantly. This may destabilize its military and will be closely monitored by countries all over the globe.
The gold market has several major issues it must keep an eye on. First, there is the issue of geopolitics and the potential for armed conflict. The war in Ukraine continues, and there are increasing concerns over a Chinese invasion of Taiwan. Although the U.S. has thus far been able to stay out of the war in Ukraine, an invasion of Taiwan would almost certainly drive the U.S. to take up arms and protect its ally. A war between the U.S. and China could set the stage for a global Third World War in which China, Russia, and several other actors are involved. Such a war has the potential to become nuclear, and therefore is cause for great concern.
In addition to the state of global geopolitics, the gold market is also paying close attention to the Federal Reserve and interest rates. At its previous meeting earlier this month, the Fed elected to hold off on another rate hike for now anyway. The Fed did suggest, however, that at least two more hikes would be seen this year as it continues to try to get inflation under control. If and when the Fed does signal it is approaching or at the end of its current tightening cycle, the markets may breathe a sigh of relief. Just because the Fed may stop raising rates does not mean, however, that it will begin aggressively lowering them either. The central bank may look to maintain current rate levels for some time, possibly years, or until inflationary pressures subside further. Inflation has declined in recent months, but it remains far beyond the Fed’s desired target level of 2% annualized.
The gold bears remain in control on the daily chart. The market has been trending lower for several weeks now, and until reversed, the bears may try to push prices lower below key support levels. The $2,000 level remains a key target for the bulls. If they can produce a close above this level, more bulls may jump into the market and momentum could take gold significantly higher in a short period. The bears are targeting a close below the $1,900 level. A close below this area could suggest more downside is on the horizon and could attract more short sellers into the market.