The gold market was quiet today, very quiet in fact. Spot prices are now at $1851.70 in late afternoon trade. The bulls did score a victory, of sorts, as prices were ankle to maintain trade above the $1850 level. The bulls have their work cut out for them, however, if they want to put some distance between the market price and this key technical level. The yellow metal saw some benefit today from stronger crude oil and lower stocks. Despite these bullish factors, the market may be fairly limited to the upside as rising bond yields and a dollar rebound take a toll.
The stock indexes were hit hard today. The benchmark Dow Jones Industrial Average finished down by nearly 300 points, while the tech-heavy Nasdaq did not fare much better for the day. Stock markets have shown some signs of a near-term bottom having been reached. The bulls have thus far been unable to establish a trend higher, however, and the markets remain fragile and vulnerable to further selling.
Market action across markets may accelerate tomorrow as some key data points for the week quickly approach. Thursday, the European Central Bank is set to meet to discuss and lay out its plans for tightening of monetary policy to combat inflation. On Friday, the U.S. will see the latest reading of the Consumer Price Index, a key inflation gauge. The index is supposed to show a rise of 8.2% in May year-over-year, a hair lower than the 8.3% year-over-year rise seen in April. Should the figure come out even higher than forecast, markets could see some significant selling pressure. If the data is weaker than forecast, however, it could greenlight stock investors to buy and the equity markets could see a substantial rally higher.
Weaker than expected inflation data could send some very mixed signals into markets. The Federal Reserve has said it will stay the course and continue to hike rates to battle inflation. If inflation has already peaked, though, would the Fed need to hike as aggressively as it now appears ready to do? Any change of plans by the central bank could put the U.S. economy into a bad space. Stagflation could become the new norm should the Fed stop short of using all of its tools and power to calm price pressures. Not only is this a negative in and of itself, but any changes by the Fed will also likely confuse investors, making them quicker to sell assets. This could cause heightened volatility across markets in the months ahead, with investors not knowing where to put their capital to work.
Gold is still stuck in neutral. The $1900 level remains a key resistance area for the bulls. The $1800 level remains a key level of support. A breakout above $1900 or below $1800 could dictate the metal’s direction in the months ahead. Price action may remain muted until such a breakout or breakdown occurs.