The gold market is off a few dollars per ounce in early action Thursday as the bulls take a breather. Spot gold prices are down by almost $6 per ounce on a busy economic data day as some back and fill trade takes place. Today’s decline should not only not be a cause for concern but in fact should be welcomed. Markets rarely, if ever, move straight up or down. Today’s pullback may be nothing more than a healthy pause before the bulls look to take prices here again.
While the war in Ukraine rages on, Russian President Putin has again threatened the use of atomic weapons. In a threat against NATO, Putin reportedly suggested he would deploy those weapons in and around the Baltic if Sweden and Switzerland join the alliance. The war could be on the verge of a significant turn towards even more bloodshed and civilian deaths. The world is watching closely, although there may not be much more that other nations can do outside of sending troops.
In addition to the war, markets are also playing close attention to ongoing Covid developments in China. The country has already implemented lockdowns in parts of the country, including Shanghai, and President Xi Jinpoing reportedly sees no alternative to a zero-tolerance approach. The lockdowns in China may have a ripple effect that makes its way through all global markets within weeks. As the globe’s second-largest economy, any downturns in Chinese demand could weaken commodity prices. Crude oil, for example, could be quite a bit higher from current levels if Chinese demand were at full capacity.
The Chinese Central Bank appears ready to lower interest rates and reduce reserve requirements for banks. These actions are intended to free up liquidity in order to combat the slowdown seen due to Covid even though they may come at a particularly challenging time as inflation runs super hot around the globe.
The European Central Bank is meeting this morning and no changes are expected to its policy at the conclusion. The markets may listen carefully to the bank’s post-meeting commentary, however, looking for any clues about its policy plans going forward.
Outside markets are calm and may not be much of a factor in price action today. Crude oil and the dollar are both lower on the session. Yields on the 10-Year Note are stable at 2.675%. Rising yields have been a major source of market concern in recent months and the ascent may not yet be over. If yields continue to push higher, market dynamics could see a significant change as investors rethink where they put their capital to work.
The gold bulls will continue to look for a close above resistance at the $2000 level. A move above could set the stage for a rapid run higher that could take the metal to previous all-time highs or well beyond. The bears are looking to produce a close below $1900 and then $1850. There may be little, if anything, for the bears to get excited about without a move towards those levels.