After hitting fresh all-time highs for a brief period yesterday, the gold bulls appear to be booking some profits today following the recent sharp run higher. Key outside markets are also pointing to potential trouble for the gold market today. Stocks and cryptocurrencies are sharply higher while crude oil is lower. On a positive note, however, the dollar is also seeing some selling pressure today and is off the 100 level, trading down to the 98.38 area. Thus far, the large decline seen in gold today may be nothing more than short-term profit-taking. Another significant down day tomorrow, however, could point to something a bit more sinister.
A slight shift is being seen today in the outlook over Ukraine. Tensions appear to have eased, just slightly, as Ukrainian President Zelensky has said he may be shifting his thinking regarding the country’s bid to join NATO. While a change in his thinking may be easing tensions today, many analysts doubt it would be enough to halt the war. If the war continues, the price of gold is likely to remain elevated and on the offensive.
Down nearly $70 per ounce around lunchtime Wednesday, such a significant down day for gold may be a bit unexpected, at least until one examines the chart from Tuesday. Yesterday saw a major up day with a very wide range, and the market could simply be looking to back and fill some of the chart before being in a position to move higher again. Disappointing for the bulls, however, is the fact that the market has not held the $200 level thus far. Currently sitting around $1985, the gold bulls are well within striking distance of $2000 and that area may be challenged in the days ahead.
Market watchers will be paying close attention to gold today. A good key to the market’s underlying strength may be whether bargain hunters step in to buy the sharp dip today. A lack of buying into the close, however, could point to more selling tomorrow. After covering significant ground in a short period of time to the upside, the market could become increasingly vulnerable to an even larger pullback. Despite any pullbacks the gold market may see, the price of gold is unlikely to fall too far. Inflation, economic risks and other issues may all keep gold well supported in the months ahead.
The Federal Reserve could also play a role in higher gold. The central bank will almost certainly hike interest rates by 25-basis points this month and may point to several additional hikes down the road. The Fed’s plans could possibly change if conditions in Eastern Europe deteriorate further, although it seems unlikely at this point that the war will affect the Fed’s decision making process. Needing to get inflation under control, the Fed is likely to take a more aggressive approach to policy this year than previously anticipated. That could equate to more than the three rate hikes the Fed has penciled in already, and could mean that four, five or even more hikes are implemented to get prices under control.