The gold market is moving up a tad in late morning trade Wednesday as investors await the minutes from the latest FOMC meeting. At the core of investors, angst is whether the central bank will actually elect to raise rates by more than 25-basis points at the next meeting and other meetings beyond that. The Fed has seemingly made clear it intends to fight inflation and will use all of the tools at its disposal to do so. The Fed has now said it sees a total of seven rate hikes for 2022, but with some 50-basis point hikes, rates could end the year significantly higher than originally expected.
Does the Fed have the guts. That may be the question now being pondered by many market participants as inflation continues to take a toll. The Fed is known for doing a lot of talk and not following up that talk with a lot of action. Whether this time around proves to be similar remains to be seen. The Fed has expressed increasing concern over price pressures, however, and has already adjusted the number of rate increases it sees in the year ahead. The central bank appears ready, willing and able to implement policies that could slow economic growth to a standstill. Aggressive monetary policy may be the only method the Fed has to combat inflation which now stands at the highest level in 40 years. After having seemingly backed itself into a corner, the Fed now must choose the lesser of two evils: Allow inflation to rage on while keeping rates moderate or act aggressively towards inflation and hike rates as much as necessary to get the job done.
In addition to the ongoing war against inflation, the markets are also having to consider the ongoing war in Ukraine. While no major news of substance has been seen in weeks now, the battle rages on. New sanctions against Russia may provide added pressure on the nation to rethink its plans, although the country has thus far not shown any meaningful signs of giving up. The threat of a potential ban on Russian oil and energy exports may keep energy prices elevated until the war is resolved or sanctions on energy products are actually implemented. Higher crude oil and natural gas prices could not come at a worse time, either, as they may also push the prices of already-elevated commodities even higher.
The gold bulls remain in control of the daily chart. Price action has been minimized in recent weeks and the market may simply be in back and fill mode before the next major move up or down. The bulls will look to take prices back above resistance at the $2000 level on a closing basis. The bears will look for a decline below $1900 and then the $1850 level on a closing basis. The market could spend several weeks or more in no man’s land as prices continue to consolidate. The longer gold goes sideways, however, the more major the next move up or down could potentially be. Given the current geopolitical and economic backdrop, the smart money may still bet on higher prices to come in the months ahead. This could keep any dips in the gold market being aggressively bought for the foreseeable future and may keep any dips in price from falling too far.