Blog

The gold market is taking a breather today as the bulls may have exhausted their near-term energy in recent days. Spot prices are down in late morning trade, albeit only by less than $1 per ounce. With the market currently sitting around the $1760 area, the bulls are still well within striking distance of the $1800 level.

Buying interest in gold today is being hampered by rising risk appetite as well as rising treasury yields. House Speaker Nancy Pelosi did in fact visit Taiwan yesterday and the visit went off without incident. China has vowed to retaliate, however, and plans on conducting a large-scale military exercise near Taiwan.

Treasury yields have been on the rise this week as investors attempt to figure out the Fed’s plans in the months ahead. This week, it appears that many investors are of the opinion that the Fed will in fact continue to raise rates in the months ahead. That notion has driven yields on the benchmark 10-Year Note to 2.75%.

The FOMC meeting and announcement of last week has seemingly stirred some confusion about the Fed’s intentions going forward. Fed Chairman Jerome Powell did leave the door open for what, if anything, the Fed may do come September. He said the Fed would watch the data stream and base any decisions off of it. While there have been some signs of inflation already peaking, the data stream remains full of highly inflationary data that may keep the Fed tightening for some time to come.

If the Fed does in fact continue to ratchet rates higher, the stock market and other risk assets are likely to see increasing volatility and possibly a major sell-off. After some rough times in recent weeks, the stock market did have a surprisingly strong July, rising by nearly 10%. The road for stocks higher may be met by very willing sellers who are happy to sell at higher levels. With nothing of consequence having really changed, at least as of yet, there may be no reason to trust the recent rally in equities.

After a brief dip below the $1700 level last week, the gold bulls have returned. Prices have been driven higher in just a few days’ time as shorts have been forced to cover. The bulls have a genuine test at the $1800 level. If able to produce a close above this key technical level, the bulls could attract a fresh wave of buyers that could take prices even higher.

The bears still need to produce a close below the $1700 level to gain further momentum. If able to do so, the bears could take the market rapidly lower. The recent upside in gold could have room to run, however, as the next FOMC meeting is not for nearly two months. With the long-term bullish narrative being unchanged, bargain hunters and patient longs may still look to buy around current levels.