The gold market is seeing some moderate selling pressure today as investors await the conclusion of the Federal Reserve Policy meeting. Although no action is expected from the central bank today, markets will be paying close attention to the Fed’s commentary as well as thoughts from Fed Chairman Jerome Powell following the meeting conclusion. Powell’s press conference today may be more involved than usual, as investors weigh the potential for a Fed rate hike as soon as March.
The Fed is expected today to lay out its plans for the first of several rate hikes in March. Jerome Powell is likely to have his hands quite full, as markets will want to understand the Fed’s thinking on how it plans to deal with persistent price inflation and other factors. In addition to the Fed and the possibility of three or more rate hikes this year, market participants are also concerned over the possibility of a Russian invasion of Ukraine. Russia has stationed many troops along the Ukraine border in a move that seems poised for an attack. Heightened U.S./Russian tensions come at a bad time. There have been multiple terrorist drone attacks in recent weeks in the United Arab Emirates with one of those attacks striking a strategically important oil facility. As crude prices shot up in the aftermath, it was a prime demonstration of how fragile the global oil market remains to be.
In addition to the several geopolitical issues currently taking place, markets will also consider how much hiking the Fed may have to do this year. The central bank currently has penciled in three rate hikes for the year ahead. Numerous analysts believe, however, that there will be at least four or five rate hikes this year as the Fed looks to get problematic inflation under control. The threat of several hikes has already breathed some fear into the markets, with stock market volatility seeing a significant upswing in recent weeks. A period of increased volatility could be in store, and such market conditions could potentially give the gold market a big boost as investors seek alternative places to put capital to work. In the meantime, any exceedingly hawkish commentary from the Fed or Fed officials could give investors reason to sell stocks and head elsewhere.
The gold market remains near key overhead resistance in the $1840 to $1850 area but has yet to mount a serious challenge of this area. Even with today’s decline of nearly $20 per ounce, the market remains in firm striking distance of resistance at the $1830 area. The gold bulls could very well attempt a challenge of resistance on the next major stock downturn day, a bearish day for the dollar or a highly bullish day for crude oil prices. Whatever the case may be, the gold bulls are within a day of testing this key resistance and that may hold the key to further upside in the current cycle. The bears, on the other
hand, will target first a close below the $1800 level and then a test of $1775. A breakdown below $1775 on a closing basis could signal the end of the current rally and further downside could be seen as bearish momentum builds.