The gold market is lower Monday as bearish outside market action and bearish charts take a toll on sentiment. A stronger U.S. Dollar Index as well as a rise in treasury yields are pressing gold today as recently deteriorated chart posture also plays a role. Despite these factors, gold is only down by $2 per ounce in late morning trade.
The Fed has maintained its hawkish stance for some time now. Many are now wondering if the central bank will raise rates again at its next meeting set to take place in June. Earlier today, Minneapolis Fed President Neel Kashkari said the Fed is determined to bring the inflation rate down to 2% annually. He did say, however, that he was unsure if the Fed would raise rates again next month. If the Fed does decide to not raise rates again in a few weeks, it could prove to be nothing more than a hawkish pause before the Fed continues its rate raising. The Fed has seemingly been unable, thus far, to show any major signs of taking a more dovish approach to its policy. While inflation has calmed down in recent months, it remains far above the Fed’s desired rate of 2% annually and may need even higher rates to bring it down further.
As long as the Fed maintains its hawkish posture, the gold market may see limited upside from recent levels. The dollar may see strength and that could also weigh heavily on gold if the currency is able to maintain higher ground. The gold bulls may be able to keep the market around the $2,000 level for now, but will eventually need a fresh catalyst to take prices higher on a sustainable trajectory. A breakout above the $2,000 level, on a closing basis, could set the stage for the bulls to take the market higher, possibly back to previous all-time highs. If the bulls fail to keep the market near the $2,000 level, however, the bears could find themselves in increasing control of the market and could eventually take prices down to $1900 or lower.
The U.S. is rapidly approaching the deadline for its debt ceiling. President Biden and Speaker McCarthy are meeting today to discuss the matter and hopefully will make some progress as negotiations move forward. A U.S default, which could take place in early June, could be catastrophic for the global economy and could put the U.S. economy into a deep and prolonged recession. Although a default could be terrible for the U.S. and its currency, it could also be highly bullish for gold and could propel the metal well into fresh all-time high territory.
In the meantime, the gold bulls still have the technical advantage but are fading quickly. If that advantage is lost, the bears could very well drive the market lower quickly, and a test of the $1900 level could be seen in short order.