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The gold market is off to a slow start Tuesday as the holiday shortened trading weeks gets started. Spot prices are down a few bucks per ounce, taking the metal below the $1900 level in the process. Earlier in the session, gold hit a five month high before seeing some profit taking and selling enter the market. Bullish price action in two key outside markets, including higher oil and a weaker dollar, may keep gold prices from declining much further today.

The notion of rising inflation will also play a role in gold’s price action this week as investors become increasingly concerned over the idea of increasing inflationary pressures. Gold ETFs have seen an increasing amount of capital inflows in recent weeks in a trend that may continue. The rising inflationary concern may keep the gold market well supported for the months ahead while also pressuring equity and bond markets. Such a market scenario could lead to an uptick in gold and silver prices while providing these markets with the ammunition necessary to challenge previous all-time highs or beyond.

In addition to oil and the Dollar Index, gold investors are also likely to pay close attention to Bitcoin and the crypto space in the weeks and months ahead. Bitcoin recently traded as high as $65,000 before seeing a pullback that has dragged the digital currency down to the low $30,000 range. The recent volatility in Bitcoin and other cryptos may be due to several factors and it will be interesting to see if the currency stages a powerful comeback. Although some analysts have suggested that much of Bitcoin’s recent ascent was due to inflation hedging purposes, it seems unlikely that such an instrument could overtake gold as the leading hedging instrument. The amount of volatility seen in Bitcoin may be too high for the average investor to stomach, and a hedge that cannot be held onto for the long-term is not really a hedge at all.

Despite Bitcoin’s flaws and its volatility, it is likely to continue to compete with gold as a viable hedging instrument. That being said, if the price of Bitcoin really falls apart even further, much of the capital that would presumably exit the currency could find its way into the gold market. This could keep gold’s trajectory moving higher, albeit on a much slower pace compared to Bitcoin. That slower pace may become increasingly attractive to investors that have been burned by Bitcoin or cryptocurrencies, and it may keep the trend up in gold for the foreseeable future.

The bulls have again taken full control of gold on the daily chart and the trend remains higher. The bulls will likely target previous resistance around the $1970 area as their next objective, while the  bears may target support seen in the $1850 region. If the bulls are able to take out the January highs around $1970 on a closing basis, look for the market to put together a powerful and rapid rally that could take it to previous all-time highs or beyond.