The gold market is slightly stronger in late morning trade Monday as the dollar holds near the day’s lows. The dollar is trading at the weakest levels since February while the gold market is holding near a 4.5 month high.
In the aftermath of last week’s market volatility, the yellow metal has rebounded, retaking its 200-day moving average in the process. With the dollar stuck at three month lows and treasury yields remaining subdued in recent action, the gold bulls may be in a position to take firm control of the market, challenging the $1900 level in the process.
The recent sell-off in cryptocurrencies has also likely boosted the gold market. Bitcoi and other digital currencies have seen some tough sailing in recent sessions. Bitcoin has now declined by some 50% from recent highs, with a cathartic decline of over 30% in a single day being seen last week. The currency is seeing some buyers wade into the market on Monday, however, as prices are up nearly 15% in mid-morning trade.
Rising U.S. Inflationary risks have kept investors on their toes in recent days and will remain a key piece of market stimulus for the foreseeable future. This week, several fed officials are set to speak and investors will be paying close attention. Despite the central bank’s reiteration that it is going to remain very patient with monetary policy, the last Fed meeting minutes released last week threw some doubt into the picture. The speakers this week may stick with the Fed’s patient policy, or they may signal that inflation is an increasing risk and policy may require changes sooner than anticipated.
The Fed and its plans are likely to be the primary market focus in the months ahead. A dovish Fed could keep stocks moving higher while also fueling buying in gold and other hard assets. An increasingly hawkish Fed, however, could have the opposite effect and could send both stocks and gold sharply lower. Any clues provided by the Fed may have a significant market impact and could be market moving.
Investors will await further economic data this week to form opinions on the Fed and what it may or may not do. The latest readings on gross domestic product, durable goods and weekly jobless claims may all impact markets. These data points could also give the Fed more to think about as it shapes policy and looks to steer the market clear from the ongoing viral pandemic. Like stocks, gold also stands to move based on economic data.
The yellow metal has garnered additional attention in recent days and that may fuel further upside as positive momentum builds. The breakout above $1800 as well as the 200-day moving average make it a buyers’ market, and any dips are likely to be aggressively bought until proven otherwise. The $1900 area may be tested in the days ahead, possibly this week, and if the market is able to break out above this level on a closing basis there may be little to hold it down for long. The bulls may look for a lasting run that could see the market drift rapidly towards the $2000 area.