Despite some seemingly bullish data released this morning, the gold market remains on the defensive following yesterday’s large sell-off. Spot prices are getting hit again today, declining by over $20 per ounce. Gold is well below the $2000 level at this time, and if the bulls do not step up soon could see further chart damage inflicted. It is important to keep in mind, however, that the market is due for some back and fill price action following the recent run higher. Given this, we would expect prices to find some footing fairly soon given the bullish outlook for gold.
The latest reading of consumer sentiment by the University of Michigan declined, and missed expectations by a mile. The reading of 59.7 was not even close to expectations for a reading of 61.4, and also represented a steep decline from the previous month’s reading of 62.8. Of course, the war in Ukraine may have a lot to do with this decline, but other issues also remain that may present problems for markets in the months ahead. Outside of the war, inflation remains a stubbornly persistent problem that is now hurting American consumers. The bite of gasoline at over $4.00 per gallon on average may continue to weigh on consumers, forcing them to cut back on spending. Any spending cutbacks could trickle into other key areas of the economy, and could even put the economy into recession if serious enough.
The Federal Reserve will almost certainly begin hiking interest rates next week with an initial 25-basis point hike to the Fed Funds Rate. This hike will likely be the first of many to be seen over the course of the year. The Fed has penciled in three rate hikes for 2022, but many analysts believe the central bank will be forced to hike rates four, five or even more times to get prices under control. The threat of increasingly aggressive Fed action may keep stock investors under wraps and could even lead to a major trend change for equity markets and possibly a large-scale sell-off. Stocks have already seen a heavy increase in volatility in recent weeks and that volatility may be here to stay as long as the war in Eastern Europe continues. The Fed may have to factor in the war at some point when guiding policy, although for the time being it does not appear it would affect any change.
Some indications are pointing to the possible passing of key anxiety levels within markets. Treasury yields have been on the rise this week, while the price of crude oil has backed off sharply from recent 14-year highs seen. If worries over the war have in fact peaked at this point, investors will likely turn their attention to rising inflation. Expectations for inflation over the long-term have now risen as well, with the report also showing investors expect a rise of 5.4% over the next year. That is a strong rise from previous estimates of a 4.9% rise, and is the highest level in some 40 years.