The gold market is off to a stronger start in mid-am trade Monday. After being down earlier in the session, the bulls have circled up and driven prices higher by nearly $8 per ounce. The gains are coming ahead of tomorrow’s CPI report which could show inflation continuing to rear its ugly head.
A rebound in the U.S. Dollar Index may weigh on gold today as the currency looks to bounce back from a recent test of swing lows in the 92 area. How much potential upside the currency has is another question and it could soon run out of gas leaving it vulnerable to bearish pressure that could send it right back down to 92 or lower.
Despite the key issues that may be viewed as bullish for gold, the market continues to struggle with apathy. Recently, the CFTC reported that hedge funds and large market participants lowered their bullish positions in the metal last week. The participants actually reduced longs so that the market’s net length is now 17% less than the previous week.
The reduction in net long positions could be indicative of speculators holding the view that the Fed is likely to begin tapering its asset purchases sooner than expected. A reduction in QE by the Fed does have the ability to negatively influence gold and could set the stage for a decline in inflows for the metal that could see it drop in price accordingly. The specs may also see a rise in real rates on the horizon and may be reluctant to get long gold in such an environment.
As markets ready for tomorrow’s inflation data, they also continue to monitor the geopolitical scene for any inputs. Overnight, North Korea fired a gtest missile that reportedly traveled nearly 1000 miles. Although the missile firing is not causing market volatility or selling today, it does act as a stark reminder that North Korea is still in search of viable weapons. The rogue nation may yet need to be dealt with in one way or another and could pose a serious threat to global democracy and prosperity.
The major spending plan by the Biden administration is seeing some obstacles as the President attempts to get it passed by Congress. Although it is not causing any major upset today, a lack of passage for the bill could send stocks and risk assets lower while also potentially giving the dollar a boost. Such a scenario may be viewed as being bearish for gold and the next few weeks will provide further developments on the story.