The Calm Before The Storm?
The gold market is having a quiet day on Wednesday as spot prices are lower by a dollar and change per ounce. The metal took a dip from levels seen earlier in the session after retail sales data came in better than expected. Not only did retail sales data for October beat expectations but the September print was also revised higher. The stronger data may lead more investors to assume that the Fed will not be lowering interest rates any time soon. The higher-for-longer mentality appears to be here to stay, although the Fed could still hike rates even higher if inflation rises or if the data becomes too hot.
Interest rates and inflation remain a focal point for the gold market, but they are not the only focal point. The two wars currently happening, between Israel/Hamas and Russia/Ukraine, are also the subjects of attention. The Russian/Ukrainian war has been raging on for some time now, and no end to the conflict appears in sight as of yet. Although there have not been any new, major headlines in this war for some time now, the talk of nuclear weapons being used has been on the rise in recent months. Although the use of nuclear weapons may remain very unlikely, the potential threat of even discussion of them may keep gold and other flight-to-safety instruments well-bid in the months ahead.
The war in Israel has already entered what could be its most deadly phase as Israel marches into Gaza. This region is filled with non-combatant civilians and many of them have already been killed in the violence. The lack of power, internet, and even water may only make the situation worse in the region. This conflict has thus far remained between Israel and Hamas. Should others, such as Iran, decide to become involved, it would likely force U.S. involvement as well and the conflict could blow up quickly into a global affair. Fortunately, that has not happened as of yet. The possibility of it could also lend gold a boost, however, and may keep the yellow metal from falling too far if it does decline rather than rise.
The gold bulls continue to take a breather following the recent upside for the metal. The metal remains well within striking distance of the next key technical level at $2,000 per ounce. The bulls will likely challenge this area again in the coming days or weeks. A successful upside penetration on a closing basis could set the stage for a much larger rally that could challenge previous all-time highs in a short period. A failure to take this level out, on the other hand, could pave the way for the bears to take control of the market and drive prices sharply lower. Given high levels of inflation and the risks of a Third World War, the bulls may have the advantage.