The gold bulls are off to a slow start this week as trading resumes following the Thanksgiving-shortened last week. Gold is lower in mid-morning action, down by over $7 per ounce. Prices were firmer earlier in the session as investors appeared able to brush off the Omicron Covid strain and focus their attention elsewhere. That has seemingly changed as the session has gone on, however, and spot prices are now decidedly lower for the day.
The fear of the new strain may keep markets a tad averse towards risk. That risk aversion could also mean that the Fed may need to rethink its tapering or even rate hike plans, possibly delaying them for a significant period of time. The largest economic threat posed by the new variant is the closure of economies all over the globe as governments attempt to stop the viral spread. Some countries have already closed their borders to foreigners, although that may be considered premature by some. The general opinion, thus far, is that the threat posed by the variant is overblown and markets are likely to realize that quickly. With more questions than answers currently, however, the virus may keep investors turned off to risk and that could benefit gold.
Raw commodity markets were sold heavily on Friday as well as stocks. Equity markets are staging a significant rebound today, however, and commodity markets may also follow suit. The crude oil market is up sharply in early action Monday, crossing the $70 barrier as the bulls run prices higher by nearly $3.00 per barrel. Crude oil may provide some important clues regarding inflation this week and in the weeks to come. If oil prices ease further and a downtrend develops, inflation fears are likely to recede. On the other hand, if crude stabilizes and begins to rebound, inflation fears are likely to remain or even increase.
The gold bulls will need to put together a rally of sorts in order to maintain control of the daily chart. There is a two-month old uptrend alive on the chart, although the trend higher is now hanging on by a thread. The bulls will need to take out last week’s highs in the $1853 area to attract more interest and keep the bullish trend going. A failure by the bulls to do so could flip the market on its head, providing the bears with needed ammunition to take prices lower. Solid technical support exists at the $1761 level, and the bears may need to close prices below that to attract more fresh selling.
The market may continue to spend time moving sideways as it has done for months now. The longer the period of consolidation is, however, the more significant the eventual breakout or breakdown may be. Investors may be appeased taking a wait and see approach regarding Fed policy and may be reluctant to make any major bets in the absence of fresh stimulus.