Inflation is the talk of the town today and has been so for months now. As Federal Reserve Chairman Jerome Powell testifies before Congress today on the state of monetary policy and the economy, investors are likely to ;parse every word from the Chairman’s mouth looking for further clues on policy and potential tapering.
Powell has suggested that tapering remains some time off in his commentary to Congress. The Fed appears set to continue its current path of ultra-low interest rates and monthly security purchases for as long as it is able to.
Powell leaning on the easy side of the ledger has already given gold a boost today. The yellow metal is near the day’s highs and could make fresh daily highs before the day session concludes.
The most recent Consumer Price Index reading was hot, in fact it was the highest reading since 2008. The Producer Price Index, released today, also showed rising price pressures as the gauge saw a rise of 1% from May. Consensus estimates were looking for a rise of .6%. The hotter PPI data today had little to no impact on markets, however, as higher inflation figures are no longer a surprise but may be expected.
The gold market has seen some selling pressure in recent weeks as expectations have shifted a bit on monetary policy. With some Fed members leaning towards tapering sooner rather than later, Fed-induced volatility may see a significant rise in the weeks ahead. Any indications that the central bank could begin scaling back earlier than currently anticipated could fuel some sharp selling in stocks and gold. Despite Powell’s remarks today, this issue will likely become a major market influence in the months ahead, either driving a further stock market rally or derailing it.
As the Fed debates its course of action for the months and even years ahead, markets may be forced to turn their attention elsewhere. Hotter inflation, a stock reversal and geopolitical issues may all be areas of focus as the gold bulls seek out a fresh catalyst.
Whatever the next bullish catalyst may be, the gold bulls may have plenty of clear room ahead on the upside to sail. With little to no upside chart resistance there may be little, if anything, to contain the bulls once a breakout gets going to the upside. Momentum players, technical traders and more may all look to jump on the bandwagon should gold provide a clear buy signal on the upside.
For the time being, the market appears to have found some balance as it trades above the $1800 level. The bulls have plenty of work remaining, however, as they will need to show a significant push above the $1800 level to attract further buyers. Resistance in the $1840 to $1850 area may be the next key upside target for the bulls, while the bears will look to take prices back below the $1800 level, eventually targeting the $1600 region.