The gold market is lower by about $4 per ounce in early afternoon action Wednesday. The market may be due for a pullback in price levels following the recent upside it has seen. On today’s action, the selling has been limited due to a decline in the dollar and treasury yields. Any buying interest has also been squelched, however, by a solidly lower crude oil market.
Markets and investors appear to be quite a bit calmer today after a missile entered and killed two in Poland on Tuesday. Recent reports by the U.S. have suggested the missile was likely not Russian but was rather a Ukrainian missile launched to protect the country from Russian missiles. Overall, risk appetite remains fairly robust at mid-week as investors are still celebrating Tuesday’s weaker-than-expected PPI data. Moves by the Chinese Central Bank and a loosening of Covid restrictions in China are also fueling the appetite for risk Wednesday. The gold market seems to be viewing the Chinese developments as a market positive, in the hopes that the measures will act as a catalyst for more metals purchases.
The political scene in the U.S. may begin to heat up once again as Donald Trump last night announced his third candidacy for President of the United States. How much weight Trump may pull this time around is the topic of much debate, however, and it does not appear Trump carries the same power he did when running years ago. Having Trump in the mix could heat things up between him and his former protégé Ron Desantis, who may also be strongly considering a run for the highest office in the land. Former Vice-President Mike Pence has also suggested he could potentially run. One thing is for certain: Trump does not seem to instill the same fear that he did amongst rivals the first time around. That could make for an interesting election.
Investors will closely monitor any fresh developments on the inflation front in the weeks ahead. The Fed may now be unlikely to hike rates by another 75-points next month. A 50 or even 25-point hike now seems more likely. The big question for investors, however, is not what the Fed may do next month, but what it may do as 2023 gets rolling. The recent weaker-than-expected CPI and PPI data may have cleared the way for the Fed to slow the pace of rate hikes in the new year. The markets may be somewhat appeased with a slower pace of hikes but what they really want to see is a reversal by the Fed to start easing again. As is often the case with the Fed, it may wait until it’s too late to reverse course and it could fuel a massive recession next year if it continues to take rates higher.
The gold bulls seem to be feeling better about the future of monetary policy. The recent breakout above $1700 seems to have some legs to it, and the bulls will now look to produce a close above the $1800 level.