The gold market is slightly lower in early action Tuesday. The yellow metal hit an 8.5-month low overnight and is seemingly stuck as the dollar continues to rise. The market is also being hampered by lower crude oil and a lack of fresh, bullish inputs. There are several major issues currently going on, none of which are helping gold at present, however, The spread of Covid-19, recession fears and more could all be bullish elements for the gold market, yet have thus far not shown any ability to provide a sustainable boost.
In the big data point of the week, markets are anxiously awaiting Wednesday’s release of the latest Consumer Price Index data. The CPI is expected to show a year-over-year rise of 8.5% for June and could be market-moving if it is grossly under or over estimated. The CPI data could influence the Federal Reserve as well, and might speed up or slow down the pace of further interest rate hikes. A CPI figure that is above expectations could fall into the hawkish camp and may keep the Fed moving more aggressively. A large miss on the figure, however, could have the opposite effect and may lend some credibility to the idea that inflation has already peaked. In this case, the Fed could possibly elect to take a more gradual approach with rates.
The markets are also awaiting the next FOMC meeting announcement. The Fed is quite likely to raise rates by another 75-basis points this month as it looks to calm inflation. Markets are now expecting a larger hike. What markets may want to know, however, is what the Fed is thinking about going forward. Will the Fed keep hiking rates more aggressively or could it take a slightly calmer approach? Any clues provided by the central bank about its policy plans in the months ahead may be useful for investors and could send the markets moving up or down.
The Fed’s commentary regarding its policy plans may also have large ramifications for the dollar. The greenback has been ascending in recent months largely due to heightened rate expectations. Should those expectations ease or reverse course, the dollar could become very sellable and may start heading lower once again. Dollar weakness could possibly open the door to a reversal in gold as well, as it makes gold cheaper for foreign buyers.
The $1700 and $1800 levels remain key for gold for the time being. If the bears are able to produce a close below $1700, the bottom could fall out and a fresh leg lower may be seen. If the bulls are able to take out the $1800 level, it could attract fresh buying interest and possibly fuel a larger market reversal. The market remains stuck in neutral right now, however, and may require some fresh bullish or bearish inputs before making a sustainable move higher or lower.