The gold market is weaker in mid-morning trade Thursday as commodity markets in general see a significant slump. Commodities are almost certainly being hit and hit hard by recession concerns and worries over declining demand in the months ahead. Gold and other markets appear to have undergone a switch from worrying about inflation to being more concerned about the possibility of a recession. Federal Reserve Chairman Jerome Powell’s recent commentary did little, if anything, to alleviate fears the economy will slip into recession in the months ahead. His commentary was hawkish in nature as he said the Fed will remain focused on fighting inflation and using the tools it has to do so.
Outside markets are mixed today. The dollar is stronger at midday while crude oil is weaker. Yields have slipped this week, however, with the benchmark 10-Year Note now fetching a yield of 3.05%. Commodity markets, including crude oil, could remain under pressure in the weeks ahead if the Fed maintains its hawkish rhetoric and if worries over recession increase. Slower demand could affect gold negatively as well, as it could decline alongside other commodity markets and investors could look to go to cash as they wait out the slowdown.
The question for investors now is how will the Fed hike rates in the months ahead. Following last week’s surprise 75-basis point hike, the Fed is very likely to hike by the same amount at its next meeting. After two large hikes in a row, the question is then whether the Fed will try to keep up that pace or if it will slow things down, going back towards a 50 or even 25-point hike. Time will tell, but one thing seems certain: The Fed is way, way behind the inflation curve and can likely do little, if anything, to get it under control.
As investors await more clarity from the central bank, the battle between inflation and recession fears will continue. Gold could stand to benefit from higher price pressures compared to paper assets, although those benefits could take some time to be seen. Worries over recession, however, may be seen far more rapidly and could weigh on gold prices in the months ahead.
Gold remains in neutral territory currently, as it has been unable to breakout above $1900 or below $1800 for weeks now. The market will eventually break out of one of these levels, and once it does, the trend for the coming months could be determined. With little price movement in recent weeks, however, there has been little incentive for longs to enter the market. The gold price could gain considerable steam, however, once some key upside targets are broken on a closing basis. Despite the numerous bearish risks for the yellow metal right now, patient longs understand its value and could view recent prices as an opportunity to buy gold on sale. This mentality could keep the metal from declining much further.