The gold market is now trading solidly below the key $2,000 level. After being higher by a few dollars per ounce earlier in the session Monday, gold has now dipped and is well into negative territory. Spot gold prices are now down over $6 per ounce at $1977 and change and are vulnerable to a larger scale sell-off if things do not change quickly. A weaker U.S. Dollar and a decline in treasury yields were driving gains earlier in the session. Despite these bullish outside market postures, however, investors may remain largely focused on the Fed and its plans for more rate hikes.
Stock indices have also been hit recently as worries increase over the Fed keeping rates higher for longer. Even as recession concerns mount in recent months, the Fed thus far appears intent on getting inflation under control regardless of the potential consequences. The Fed is likely to raise rates again at its next FOMC meeting but could then possibly signal a pause in rate hikes. Of course, the Fed cloud also signals that it intends to keep going with rate hikes and that rates are going to remain elevated for longer than anticipated. Should the Fed desire to convey this message, it could potentially move markets significantly. Not only would stocks and gold potentially see large moves, but investors could also take a “run for the hills” approach and look to exit all markets simultaneously.
The Fed and its plans have been and will continue to be a major catalyst for the gold market. The market is also paying close attention to the global geopolitical scene, however, and could also see movement based on any changes within it. Tensions between Russia and the West have not been this high since the days of the Cold War, and worries over a Chinese invasion of Taiwan have been on the rise in recent months. Such an invasion would almost certainly cause the U.S. to become directly involved, and it could even be the beginning of the Third World War.
Looking at the long-term rather than just the short, the gold bulls likely recognize the risks in the global marketplace currently and are buying gold based on those risks. Even with gold’s recent downturn, the market remains within a strong trend higher on the daily chart. The six-week-old uptrend will need to be updated at some point, and the bulls will target the April highs around the $2.063 level before taking on previous all-time highs just above that. The bears are targeting the April low of around $1.965 and will not have much going without a breakdown below this level on a closing basis. The market may now need to spend some time moving sideways, however, as some back-and-fill trade takes place. If the bulls retake the $2,000 level, the move higher could happen quickly and decisively.