Risk Aversion Supporting Gold
The gold market is higher again today and hit a new six-month high earlier in the session. The yellow metal is being bid up as risk aversion remains robust. Investors are concerned about a variety of issues, including the risk of recession this year and the prospect of even higher inflation. The war in Ukraine is not helping either and may continue to fuel rampant inflation that remains not far from multi-decade highs. Traders are awaiting the latest Fed meeting minutes set for release today which could provide further insight into what the Fed has planned for the year ahead.
In addition to the potentially slowing economies of key global leaders, the Chinese economy is also of special concern as Covid infections are again on the rise. The nation recently put an end to some of its closure policies, but those policies may have kept the infection from becoming even more widespread and problematic. As an increasing number of people get sick and are unable to work, the globe’s second-largest economy may again see a dramatic slowdown due to the virus. The timing could not be worse, either, as many powerful nations including the U.S. are already flirting with an economic recession. Worries over a recession may keep a bid going in the yellow metal and could keep any stock upside limited for the time being.
The jobs report due for release Friday could provide more clues about the Fed’s intentions. The report is expected to show a rise in jobs of 200,000, compared to the November rise of 263,000 jobs. If the report comes in as expected, it may not have much, if any, effect on markets. A large beat or a large miss, however, could send markets sharply higher or tumbling lower. The jobs data is one of the, if not the largest, economic reports of the month. Strength may allow the Fed to keep tightening as it has for months now, while weakness could give the Fed reason to consider a pause. The Fed has already suggested that rates may need to remain higher for longer, and anything that backs that notion up may give investors cause for concern.
The gold market is now above the $1850 level as of this post. The bulls have done a good job, thus far, of holding the market above the key $1800 level. The $1900 level is the next major target on the upside and that level could be challenged in the days ahead. The bears will look to produce a close below the $1800 level and then possibly challenge the breakout point at $1700. A breakdown below the $1700 level would be very bearish for gold at this point, and may find nothing to stop a decline in price until the $1500 level is reached.
Gold’s price direction in the year ahead may depend greatly on the Fed and its plans regarding monetary policy. Any clues concerning the Fed’s plans may be market-moving and could give the market reason to continue its current uptrend or to reverse course.