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After seeing some significant declines the last few days, the gold bulls are out in force on Friday. The bulls are pushing the yellow metal higher and to within striking distance of the key $1800 level. Recession fears are continuing to build, as a contraction in both manufacturing and the service sector weighs on sentiment.

The S&P Global Flash U.S. Composite PMI showed a decline in both areas today, and registered one of the steepest declines seen since 2009. Activity has dropped to the lowest level since May 2020 and may be due to both declining demand as well as higher interest rates. The data suggests that the Fed may be accomplishing its goals on inflation, but the economic risks associated with doing so are clearly mounting.

The slowing economy may be cooling off stubborn inflation, however, as the Fed stays focused on what it considers to be the real, major economic threat. The Fed has, thus far, remained hawkish despite some better-than-expected inflation data coming out recently. The real test for the central bank may come, however, when recession fears really become the focal point of markets and when a recession looks inevitable. Will the Fed then remain on course and keep hiking interest rates? We shall see. Some traders and investors may, in the meantime, call the Fed’s bluff.

After retaking the $1800 level earlier this week, the bulls have so far failed again to hold it. The bears have taken the market well below the $1800 level and are trying to keep the bulls from rallying price back above it. Whether it happens today, next week or next month doesn’t really matter. The longer-term charts for gold such as the weekly and monthly charts remain bullish. This may keep long-term investors more than willing to step in and buy any dips in the metal and keep prices from falling too far too fast. The bulls may remain in control on the larger time frames, in fact, unless the bears are able to produce a close below the recent lows around $1619. A move below this level could cause many bulls to throw in the towel and a run to the $1500 level could not be ruled out.

Now that the U.S. Federal Reserve, European Central Bank and Bank of England have all met for the final time in 2022, the gold market may simply drift sideways on declining volumes until year’s end. Any break from action is unlikely to last long, however, as investors should come back with a roar as 2023 gets going. Once the new year gets underway, the bulls may return to take the yellow metal higher. Of course, much of gold’s fortunes next year may depend on the Fed and what it does or does not do regarding rates. Even with a terminal rate above 5%, the Fed is unlikely to take rates much higher than that. The gold bulls need to simply wait then, until the Fed finally signals it will begin cutting rates. With rates expected to return to 3.1% in 2025, it should not take too long for the Fed to reverse its position and begin easing.