The gold market is sagging a bit as the new trading week gets underway. The gold price has now sunk below the key $1800 level and could attract further selling if it closes below this important threshold. The yellow metal is now dealing with a variety of issues that could affect its price in the months ahead.
The Federal reserve is a major issue for the gold market and a major cause for concern for many investors. The Fed is now being forced to deal with not only the threat of rising inflation, but also a resurgence of the viral pandemic that has affected the globe significantly for the last two years. Add to this a faltering global supply chain and the world’s economy could be headed for tough times.
The Coronavirus Delta variant has taken the globe by storm and is spreading even faster than the initial virus did. The spread of the Delta variant further complicates an already-challenging time for the Fed. The meeting of the Fed this week may very well not be as rosy as the meeting that took place in June as the central bank may be forced to acknowledge its battles with inflation and slower growth.
The Fed will issue a fresh policy statement on Wednesday afternoon followed by a press conference with Chairman Jerome Powell. The leader of the Fed may try to convey that the central bank will need to find a balance between supporting the global recovery while also keeping an eye open for the risks associated with doing so. This could mean that the Fed is likely to maintain its current policy stance despite any further climb in price pressures.
A lot of issues have come to light since the last Fed meeting, and the viral pandemic has the potential to shake the global economy again. With the potential effects of the variant on the public health crises, the Fed and other central banks may have to simply keep their feet on the gas pedal, maintaining the status quo for the time being. If the Fed and other central banks do elect to maintain currency policies, the gold market could potentially see aggressive buying as the threat of inflation could also spike higher. A more hawkish Fed, on the other hand, could send the price of gold sharply lower from recent levels, possibly even allowing the bears to test the $1600 area on the downside. A breakdown below the $1600 level on a closing basis could potentially see a much more significant and powerful move lower.
The next several months could determine the near-term direction of gold as the world looks to overcome the challenges of the viral pandemic and as central banks maintain policies designed to help it do so. The gold bulls may, however, require a fresh bullish catalyst to take prices higher again and challenge previous all-time highs. Until a breakout or breakdown is seen, the market appears to have found some comfort in the recent trading range.