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The gold market is kicking off the new year in the right way, with strong gains Tuesday that may attract more bullish follow through in the days ahead. Gold has already hit a six-month high today while silver has notched an eight-month high. What may make today’s rally in gold even more impressive is the fact that gold is sharply higher despite the dollar also being very strong today. Spot gold is higher by $18 per ounce as of this post and its run higher is likely already attracting more buyers into the market.

The Dollar Index is seeing a corrective bounce today after recent downside. The dollar is not far from its recent swing low, however, and could roll right back over and continue to form a trend lower. Of course, much of what the dollar does or does not do will depend on what the Fed does or does not do. Global central bank activity will remain a focal point for the markets in the year ahead, combined with inflation worries, the Russian/Ukrainian War and more. The Fed recently lifted rates by 50 rather than 75 basis points in December, and it could do the same at its next FOMC meeting. The Fed has already suggested that it will be slowing the pace of rate hikes, the question now is by how much. After suggesting that rates may need to remain higher for longer, many are questioning the Fed and its plans for the year ahead.

The Fed and other central banks will be keeping a close eye on some key factors to determine their policy paths going forward. At the top of the list are inflation data and the war in Ukraine. Recent U.S. inflation data has shown price pressures to be weakening a bit. Should that trend continue, the Fed may become increasingly comfortable allowing rates to sit at current levels without hiking them further. Markets and investors are looking forward to the day when the Fed signals a reversal on rates and announces it will begin cutting rates again. While that day may be a ways off yet, it will come at some point this year or next. Once it does, the gold market and stocks may both rally hard on the dovish Fed and gold could return quickly to previous all-time highs or beyond.

The war in Ukraine is another factor that central banks will monitor. The war has already helped fuel inflation and may continue to do so as long as it continues. Any signs that the war may be concluding would be welcomed by global markets and could also fuel a bullish surge in gold and other asset classes.

For the time being, the bulls will look to maintain trade above the $1800 level. The bears will look to take prices back below the $1800 level and possibly target the breakout point at $1700 if successful. The bulls will target resistance at the $1900 level on the upside, and have a two-month old uptrend at their backs to help.