The Slump Continues
The gold market is moderately lower today as the bearish slump continues for the metal. Down nearly $18 per ounce at lunchtime Wednesday, the gold market remains below the key $1900 support level. Rising government bond yields and a surging dollar are both taking a bite out of sentiment today. Eroding technicals are also making it easier to sell gold today as the metal has yet to climb back above previous support levels. The lack of a bullish bounce could indicate more selling may be on the way in the days ahead, possibly even seeing the market decline all the way towards the next key support area at $1850.
The Dollar Index hit a fresh two-year high today. The strengthening dollar may become an increasingly key factor for the gold market as it makes gold relatively more expensive for foreign buyers. The higher dollar, combined with an increasingly aggressive Federal Reserve, could keep the gold bulls in check. A reversal in the dollar, on the other hand, could set the gold market on fire and could encourage buyers to take prices sharply higher from current levels. As the dollar hit a two-year high today, the euro hit a 5-year low. Unlike the greenback, the shared European currency is not seeing a flight to safety bid. Europe still gets much of its energy, in fact, from Russia and that has made costs skyrocket in the region. Russia cut off Bulgaria and Poland from its natural gas supplies yesterday. Any similar move directed at Europe could put the region into emergency mode as it struggles to replace all of that lost energy.
Stocks are higher today and seeing a nice bounce following Tuesday’s major declines. Any appetite for risk is likely to remain very limited, however, as the war in Ukraine rages on. This week is the busiest for the quarter in terms of earnings reports, and thus far those reports have been mostly upbeat. Despite upbeat earnings reports, the stock market may remain sideways to lower as risk aversion due to the geopolitical situation continues to be a major influence.
The bears have now gained some momentum and have a slight advantage on the daily chart. The bulls need to produce a close above resistance at $1950 and then $2000. If unable to do so, the bears may look to take the market lower and produce a close below support at the $1850 area. The gold market could remain mostly sideways until these levels are breached above or below. Risk aversion and the possibility of an increasingly aggressive Fed may be key issues for investors to focus on, along with the stronger dollar and rising yields. These issues may keep the gold market vulnerable to headline news and fresh developments. Shorts may want to be careful because of this risk and longs may continue to absorb any significant declines in the market until proven otherwise.