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The gold market is seeing some minor buying activity as shorts look to cover some positions. The yellow metal is still quite a ways from the $1800 level, however, and may remain vulnerable to further selling pressure. Even with the Fed shakeup this week, the metal is still not seeing much of a bid and that could keep the sellers highly motivated. Markets are also significantly calmer today compared to yesterday when the equity markets saw a major slide.

The clock is ticking on the U.S. Government funding. The funding is set to run dry Thursday evening at midnight, and if not extended, could lead to a partial government shutdown beginning on Friday. Thursday is also the day on which the House of Representatives will vote on the Biden infrastructure plan, making it a potentially market moving day.

Rising bond yields have been a major factor in recent market volatility. The benchmark 10-year Treasury is yielding some 1.50% today. A further steep rise in yields is possibly on the horizon, and if it does come to fruition, stocks and risk assets could see additional volatility and possibly selling. The rise in yields may not only affect stocks and risk assets, but it may also have additional, bearish effects on the gold market.

The dollar hit an 11-month high overnight. Dollar strength is also likely having an impact on the gold market and additional upside for the currency could spell trouble for the gold bulls. As the prospects of tapering from the Fed close in, the dollar could continue to ascend with renewed vigor. Earlier than anticipated rate hikes from the central bank could also keep the currency bulls on the offensive. The gold market would likely struggle further with additional dollar strength and the currency could be a major key holder for the market’s prospects in the months and year ahead.

The bears maintain control of gold on the daily chart. The market is now in the midst of a three-week downtrend on the chart. The bears will next target the $1700 level on a closing basis. The bulls, on the other hand, still need to take out resistance in the $1800 region followed by the mid 1830s. A failure of gold to take out these areas on a closing basis will keep the bears in control for the time being. The gold market may now be pushed lower to the early August flash crash lows and with little buying support could exceed those levels on the downside.

Despite gold’s recent lackluster performance, the market still has numerous reasons to be a buyer, especially for the long-term. A debt ceiling debacle for example, could send gold sharply and rapidly higher if the government is forced to shut down due to a lack of funding. The long-term prospects for the dollar and U.S. fiscal situation also remain very bearish. Whatever the case may be, the gold market may end up rewarding the patient, long-term investor while punishing the short-term trader or investor. A gold investment should, therefore, be made only with the long-term in focus.