The gold market recently completed its best daily gain in some time as the dollar lost ground and as yields slumped a bit as well. Also working to the metal’s advantage today is weakness in equity markets. Stock markets have been in a downtrend now for weeks, but the worst may be yet to come. There is an increasing amount of concern now over corporate earnings which had, for some time, buoyed equities. Dismal results this past week from Target and Walmart could be indicative of more tough calls to come. As Covid lockdowns continue in China and as the war in Ukraine rages on, there may be little left to offer some respite from selling pressure in equities.
Stocks are now near 12-month lows and could potentially be headed even lower. Both Target and Walmart blamed their poor results on inflation this past week, and if that is the case, there may be plenty of additional disappointments ahead. The term “recession” is being tossed around quite a bit today as investors become increasingly concerned over the possibility of a full-blown U.S. recession. Time will tell, but the chances of a recession definitely seem to be on the rise. Not only could corporate earnings take a hit due to inflation and other factors, but the Fed will, at the same time, be looking to hike rates aggressively to combat price pressures. The combination of higher interest rates and inflation could slow the economy to a standstill and could put growth into negative territory.
Outside markets are helping gold today as crude oil rises to trade around $110 per barrel. The Dollar Index hit a two-week low today while yields for the ten-year are near 2.84%. Yields have come off in recent days after trading firmly above the 3% level although it is unclear if any further declines may be seen.
Today’s rally in gold put some distance between the market price and key support at $1800. Now trading around $1840, the bulls have prior support at $1850 within their sights and could look to challenge this key area in the days ahead. If the bulls are able to produce a close above this level, they may then target the $1900 area as the next jump. The bears will not go easily, however, and will still look to produce a close below key support at $1800. If the bears fail and $1850 is overtaken to the upside, a short covering-rally could ensue that may assist the bulls in taking price back to $1900 or beyond. For the time being, the bears remain in control on the daily chart.
The gold market could remain mostly sideways for the next few months as markets await more action from the Fed. Now expected to raise rates by 50-basis points at its next two meetings, the central bank could surprise markets with any additional action or a lack thereof. After fighting to maintain its credibility, however, it seems as if the Fed will in fact follow through on its pledge to fight inflation and use any and all tools at its disposal to do so.