The gold market is under some decent selling pressure Monday as a lack of risk aversion takes a toll on the bulls. The market may very well be running out of gas as some have suggested, although any significant dips in the price of gold may be viewed as a buying opportunity.
Recent data from the Commodity Futures Trading Commission (CFTC) suggests that hedge funds may be losing patience with the yellow metal. The metal’s failure to break out above the $1900 level on this run has likely fueled some profit taking among hedge funds and large market participants. This profit taking could take several days or more to work itself out, keeping the metal on the defensive for several sessions or longer.
Following multiple months of gains to the upside, the market may need some back and forth consolidation before being able to make a sustainable run higher above resistance at $1900. This consolidation period could be short as in a few days or it could go on for a significant period of time.
Despite gold’s lack of upside follow through in recent trade, it may be tough for traders and investors to bet on the short side. Rising inflation, a Fed happy to stand pat and other issues may all keep interest in gold on the bullish side of the ledger.
Data released today from the Federal Reserve suggests that inflation may become more of a long-term issue than the central bank believes. Jerome Powell has suggested over and over that rising inflationary pressures are likely transitory as the economy continues to recover from the viral pandemic. The release of the Fed’s May consumer expectation survey today seemed to highlight the inflation threat, calling for a significant rise in prices over the next several years. That price rise, if seen, may keep bullish interest in gold elevated for the foreseeable future and may prevent the market from seeing any significant declines.
In addition to the threat of inflation, markets will also pay close attention to equities. The S&P 500 is just off a record high, and there appears to be little standing in the way of even higher stocks in the months ahead. A rising stock market may provide a roadblock to higher gold prices as investors chase equity returns and succumb to the fear of missing out. The higher the equity market climbs, however, the greater the eventual fall may be. Once stocks fall out of favor with investors, they may decide to put that capital to work in precious metals, fueling an eventual rise that could see gold move well beyond its existing all-time highs.
The key data point for this week will be the conclusion of the Fed meeting taking place Tuesday and Wednesday. The markets are not expecting anyweek ahead changes to policy at the end of this meeting. Investors will pay close attention, however, to the central bank’s commentary and outlook. The Fed has already suggested it may look to set a timetable for a reduction in its bond buying program (QE) and more could be announced concerning those plans on Wednesday.
The bulls still maintain control of gold on the daily chart, although that contro, is fading fast. The bullish camp will target a solid close above the $1900 level to attract more buyers, while the bears will look to take prices down to support in the $1810 region.