After some initial exuberance following yesterday’s FOMC meeting conclusion, investors have seemingly come to their senses today. Stocks are down and down huge, with the benchmark Dow Jones Industrial Average off by some 1200 points in late afternoon action. Spot gold is declining as is crude oil and equities, and it has seemingly become just one of those days that investors will look to forget sooner rather than later
After seeing some strong gains early in the session today, the bulls have faded quickly and all of those gains have now been erased. The gold market is having to deal with some serious obstacles today, including a fresh 20-year high for the dollar, lower crude oil and rising bond yields. The benchmark 10-Year Note is now at a 3.5-year high, fetching a yield of over 3.08%. Despite the Fed’s seemingly dovish rhetoric of yesterday, investors seem to believe that the central bank will remain focused on inflation and will do whatever it needs to do to get problematic inflation under control.
Now that the FOMC meeting and rate hike has come and gone, investors and markets will turn their attention to Friday’s non-farm payrolls data. The highly anticipated jobs report is expected to show a gain of 400,000 jobs for April. This figure is a bit lower than March’s 431,000 jobs added yet still respectable. The jobs report may be especially important now as it could provide further reason for the Fed to tighten aggressively. A stronger than expected report is likely to bolster the idea that the Fed will remain on track and will raise rates aggressively to battle inflation. Should the report miss expectations, however, it could set the stage for some disagreement about the Fed’s plans and may embolden those on the dovish side of the ledger.
The Fed is likely to raise rates by 50-basis points at its meetings in June and July. A series of 50-point hikes indicates the central bank means business with regards to inflation and will sacrifice higher stocks and risk assets to get price pressures under control. Although markets now expect such a move, it does not mean that an aggressive Fed will not come with heightened volatility and some major sell-offs.
The gold market bulls remain on the defensive as prices remain below the key $1900 level. The bears may be gaining momentum, and another test of support at the $1850 could be in store in the days ahead. The metal remains in no man’s land for now, until it breaks support or resistance on a closing basis. Once the metal does break out above or break down below, it could set the trend for the weeks ahead. The market has, thus far, been largely gobbled up on any significant declines. Whether that remains the case on a fresh breakdown below $1850 is unclear. The bears could find some legs underneath them at that point and could look to explore even lower prices in the weeks ahead. If the bulls are able to turn things around and retake the $1950 level, they may find themselves encouraged by another failed decline lower and could see prices rise to well over $2000 in a short period of time.