Thursday’s move solidly above the $1800 level may represent a resurgence for the gold market after the metal moved sideways for several weeks. As the metal languished between the $1700 and $1800 levels, hedge funds increased their short positions while frustrated longs exited the market. Gold’s lack of an upside breakout above $1800 was a primary reason cited for recent and bearish hedge fund activity.
Oh how things can change in a day. The yellow metal is seeing a solid rise today, with spot prices up nearly $30 per ounce. That ascent has put gold back above the $1800 level with plenty of room to spare. In lunchtime trade, the metal is sitting around $1815 and will close not far off the highs of the day. The day’s strength seemingly points to further momentum ahead as short-term traders look to capitalize on the move, buying into the market as prices rise.
The inflation narrative is a primary factor for higher gold prices as concerns mount over rising price pressures. Real bond yields now sit at the lowest level since mid-February, with 10-year breakeven rates also higher. These factors are having a bearish impact on the dollar, and further dollar weakness could also send gold and other precious metals soaring higher.
Despite gold’s sharp rise Thursday, the bulls still have their work cut out for them. For starters, the bulls will need to maintain the day’s momentum through the close on Friday to prevent any bearish activity from taking hold. Assuming that hurdle is cleared, the market must then make a move to resistance in the $1850 area for a key challenge. If that is not enough, the bulls will also have to contend with the market’s 200-day moving average just above that region in the $1870 area.
Given much of the market’s recent sideways and lackluster price action, the bulls may not become overly excited unless the market takes out resistance in the $1850 region. A move through this area, on a closing basis, could set the stage for a bullish ignition in the market that could take gold to new all-time highs and beyond in the weeks ahead. The gold market needs to contend with changing inflation expectations, changing policy expectations and competitors such as Bitcoin. Despite these potential obstacles, however, the gold market appears to be in a solid, long-term position in which it may gain ground and rise in value. Unlike Bitcoin, however, the gold market may take longer to rise in value, although such a rise could prove to be far more sustainable over the long run.
Despite improvements in the economic data stream, the Fed is unlikely to change its position anytime soon. Friday’s jobs report, in which the country is believed to have created nearly 1 million new jobs in April, could be a simple litmus test of gold’s resolve. If the nation did in fact add a lot of jobs, it
stands to reason that expectations for changes in the Fed’s thinking could rise. Such a scenario could be considered bearish for gold and prices could fall. On the other hand, if the jobs data is far weaker than expected, it could add to the line of thinking that concludes the central bank will not make any moves for some time to come. This scenario could be considered bullish for gold and prices could rise on the news. Either way, the jobs data is unlikely to be a major factor for gold in the current setting and any price action in gold may prove to be nothing more than knee-jerk in nature.