The gold market is off to a strong start this week as risk aversion drives equity markets sharply lower Monday. The benchmark Dow Jones Industrial Average is down about 450 points at mid-day and appears headed for a sharply lower close on the day. The risk-off mentality today is giving the gold bulls some ammunition. Gold’s upside has been limited, however, as crude oil prices are sharply lower today while the dollar is rising.
Geopolitics are at center stage this week as the trading week gets going. Iran-backed terrorists have reportedly launched a drone attack against the United Arab Emirates. The attack was intercepted, however, leaving little to no damage done. The attempted drone attack is the second such attack in recent weeks. Terrorists recently launched a drone attack against oil facilities in the UAE, fueling a sharp rise in crude prices. In addition to the threat of terrorism, investors must also consider the possibility of a Russian invasion of Ukraine. Russia has stationed many troops along the border and the U.S. has recently instructed its diplomats to leave the area as war is seeming increasingly likely in the weeks ahead.
Markets and investors will also be looking ahead to Wednesday’s Fed meeting conclusion. The end of the policy meeting will be followed by a press conference with Fed Chairman Jerome Powell. It is now widely expected that the central bank will begin hiking interest rates in March. Powell could provide more evidence of such intentions on Wednesday or could lead markets to believe that the Fed will wait a bit longer. Whatever the case may be, Powell’s press conference has the potential to be market moving. Some heightened volatility and selling are possible ahead of the meeting end, therefore, and today’s stock implosion may be a taste of what could lie ahead.
The gold bulls remain on track to challenge resistance in the $1850 area. Today’s push higher has sent spot gold prices to over $1840 and the bulls may now require additional power to conquer resistance ahead. A solid close above the $1850 level could attract further buying interest into the market, however, and the metal could be off to the races if such a close develops.
As the demand for perceived safe haven assets against inflation rises, cryptocurrencies continue to get clobbered. Bitcoin has now lost half its value from the November highs. Ether has now lost about one third of its value since just Thursday. Although cryptos may have an important place in the portfolios of the future, they have thus far been largely disappointing for many holders. While these currencies may have far more upside potential compared to gold, they also carry a far higher degree of volatility and may not be appropriate investments for much of the public. The debate over whether cryptos can overtake gold is likely to continue in the months and years ahead. For the time being, however, it appears that gold has maintained its place as the top inflation hedge for investors and an asset that can be relied upon and trusted to protect wealth and preserve purchasing power.