Recurring Delta Influence
The gold market is up strongly in early action Monday as the metal looks to retake the key $1800 level. The upside in gold being seen in early trade today may be due to several factors. Bullish outside markets, including a weaker dollar and higher crude oil, may be playing a part. The Fed symposium taking place this week may also be playing a role, as some are now feeling the central bank will not be able to begin tightening its monetary policy as soon as some had expected in recent weeks.
The ongoing Delta variant is having a major impact on the global economy, with some areas such as China and other parts of Asia being hit especially hard. The variant is also having an effect on the U.S., however, and could force the country back into mask mandates and other measures designed to stop the viral spread.
The Delta variant is also likely a major influence for the Federal Reserve. Its spread could keep the Fed on hold for longer than anticipated. The Fed could signal, even this week, that it sees the virus as a significant economic threat that could make it decide to keep its foot on the gas pedal. Whatever the case may be, it appears that market participants may now be betting on the Fec staying the course longer than previously thought.
The bulls will now look for the market to close above the $1800 on a convincing basis. If the market is able to do so, it could attract further buying interest that could send the market up towards resistance in the $1840-$1850 region. A failure at the $1800 level could, however, bring the bears out in force, possibly sending the metal on a drastic move lower that could see it even take out the recent lows below the $1700 level.
The gold price has held its gains following the release of the latest U.S. PMI data. The weaker than expected figures show a slowdown in the manufacturing and service sectors. This slowdown may be welcomed by the gold bulls, however, as it may keep the Fed on hold. The gold market appears to have entered a phase in which it may see bullish price action on poor economic data and bearish price action on any economic positives.
The PMI data not only showed economic activity, but also pointed to rising inflation as well. The report showed a rise in input prices, and that rise may be set to continue as the economy deals with higher costs due to labor and material shortages. If demand continues to cool off further, however, it could alleviate some of the inflationary pressures and bring prices back down to earth.
This week is likely to be key for the gold market as the Fed may provide clues about its plans. A dovish Fed and a corresponding weaker dollar could hold the keys to sharply higher gold prices in the months ahead. If the Fed hints at maintaining the current status quo, look for the price of gold to rally.