The gold market is off to a quiet start Wednesday. Spot gold is $2.50 per ounce at $1952.60 in early going as investors take a wait and see approach to the trading day. Gold has come back after being down several dollars per ounce earlier in the day in what may be an encouraging sign for the bulls. Stocks are mixed today, with the Dow Jones Industrial Average higher by over 200 points while the tech-heavy Nasdaq is seeing a decline of over 136 points. Stocks remain in a downtrend, recent days have seen them stabilize, however. Equity markets have been able to largely shrug off the ongoing war in Ukraine and the Chinese lockdowns and focus on corporate earnings.
Outside market action is bullish for gold today. Benchmark 10-Year Note yields are fetching 2.57%, a level much lower than earlier in the week when yields approached the 3% mark. Crude oil prices are firmer today with oil trading around $104 per barrel. After hitting a two-year high yesterday, the Dollar Index is solidly lower today in another break for the gold bulls. Despite these potentially bullish influences, the gold market is doing little to nothing in early action today.
Gold has fallen back into its trading channel and is ignoring economic data for the most part. Existing home sales fell last month and despite this negative economic data piece gold has shown little to no reaction. The market may be trading more on technicals right now after a failure at the key $2000 level. Dollar strength has also likely played a role in gold’s recent lack of upside, although the currency could be quickly approaching a major turning point.
Viewed by many as the lesser of evils. The dollar has been bid up recently as aggressive Fed rhetoric and the war in Ukraine drive safe haven demand. The dollar hit as high as 101 yesterday and may not have much room left to the upside. Massive deficits and a steepening yield curve may keep the dollar at bay. Should the currency reverse course and begin to head lower again, gold could see a significant and rapid breakout to previous all-time highs or beyond.
The Fed is likely to raise its key interest rate by 50-basis points next month and some are now even considering a 75-point hike. A 50-point hike would be the first such hike since the implosion of the dot.com bubble and could signify the Fed’s willingness to fight inflation regardless of the consequences. A 75-point hike could send a sense of shock and awe through the markets that may also send the same message.
The bulls remain in control on the daily chart. The next upside target is to produce a close above resistance at the $2000 level. The bears are looking for a breakdown below $1950 and then $1900 on a closing basis. The bulls have, thus far, held support at the $1950 area and as long as they do an upside move may follow in the days ahead.