Fed Action Forthcoming

Weekly Market Preview: Bulls On The Ropes (Sept 19, 2022)

The gold market is a bit weaker on Monday despite some keener risk aversion in the marketplace. A stronger dollar along with rising treasury yields seem to be the primary bearish factors for gold today. As has been the case for some time now, investors appear to be choosing the dollar and U.S. Treasuries for their safe haven needs and leaving gold alone.

Under Long-Term Support

Early action Monday sees gold hovering just above the nearly 2.5-year low reached last week. The yellow metal is currently under long-term support at $1,675 in what may be a sign of additional weakness to come. The longer the metal spends underneath this key level , the more likely a move lower may become.

The bulls have their work cut out for them. There is little, if anything, in the way of the bears taking prices sharply lower from current levels. Some have suggested the slide may continue until the metal reaches the $1,550 area. While this remains to be seen, the bears do appear to have the clear advantage right now.

Fed Action Forthcoming

This week, markets will see the latest Fed action as the FOMC meeting concludes. Expectations are widely favoring another aggressive rate hike of 75 points. Some have even considered a full, 100 point rate hike this week as a possibility. The Fed action this week is seemingly already priced into the market. What investors likely want to know is what the Fed plans on doing down the road.

Should the Fed remain hawkish in its actions and rhetoric, gold could see ongoing pressure. The yellow metal may not, in fact, begin to make a sustainable turnaround until the Fed signals a change in policy. Such a signal is unlikely to come anytime real soon, however, and could be well into the next year before being seen.

If the Fed does not signal a change in policy at some point, stocks and risk assets are likely to come under increasing pressure. That pressure will eventually break the market in what could be a quick and massive decline. At that point, investors may have nowhere to turn to except gold if they do not want to be stuck holding dollars.

If the Fed does decide to take a break from its rate hikes or signals it may begin loosening rates again, the gold market could see a substantial rally. The yellow metal has been driven lower not only by the notion of higher interest rates, but also by the effects of that idea. Higher rates may boost not only the dollar but also U.S. Treasury yields as well, both of which are bearish factors for gold investors.

Source: Live Trade Room

A dovish move by the Fed could not only deflate rate expectations, but could also put a major dent into the dollar and yields. This could, in turn, give gold a serious boost and put it onto more neutral footing from which it may be able to stage a significant rally.

Building A Base?

As the yellow metal spends time around long-term support at $1,675, it also has the potential to build a significant base. If the bears are unable to take prices lower from here, bargain-hunting bulls may scoop the metal up and eventually cause an upside breakout. Gold’s three-year uptrend would also remain intact then.

The gold market has been primarily rangebound for months now and may continue to move sideways into next year. The Fed seemingly holds the keys to gold’s fortunes, and the metal may not make any sustainable moves until more is known about the central bank’s plans.

The bulls need to get and maintain the gold price above long-term support at $1,675. They then need to take the market back above $1,700 and a close above $1,800 could potentially attract fresh buyers. If the bears have their way, the market could sink to the $1,550 level before finding some solid footing.

Recent Declines Seen

Weekly Market Review: Bears Are In Control (September 16, 2022)

Gold is seeing a modest bounce back on Friday following some recent heavy declines. Spot gold is up by over $10 per ounce in mid-morning trade as some recent data could be pointing to a decline in inflation. The University of Michigan consumer sentiment survey showed a slight increase from the August reading. Inflation expectations within the report fell to a one-year low.

Perhaps as nothing more than a sign of relief, the gold market moved quickly from negative territory into neutral territory and has since gathered steam. The market is, as of this writing, holding support at the $1,675 area.

Recent Declines Seen

The gold market has seen some decent declines this past week. After spending several weeks stuck in the $1,700 to $1,800 level, the bears have finally fueled a breakdown that has taken the market well below the $1,700 level. The bears clearly have the advantage on their side currently.

Despite breaking prices down below $1,700, the bears now have another key area to contend with. Long-term support around the $1,675 level may prove to be a major barrier to lower gold prices. A break below this area, on a closing basis, would not only signal there may be more downside to come but would also put an end to the metal’s multi-year uptrend.

A Key Technical Test

The first test of this key technical level is already in the books, with the bulls having won the battle. That could change and change quickly, however, if the bears get things going to the downside. The market could essentially collapse quickly if broken, with little to stop the slide until the metal reaches the $1,550 area.

Source: Dailyfx.com

The FOMC meeting taking place next week may provide further clues about the Fed’s thinking and intentions. Markets are currently expecting a hike of another 75 basis points, possibly even 100 basis points next week. If inflation expectations continue to dwindle lower, the Fed may begin to rethink its plans moving forward.

Fed’s Plans For Next Year

The Fed’s plans for next year, for example, may be a topic of great debate. The central bank has said, multiple times, that it believes inflation to be the greatest risk to the economy. How far the Fed may be willing to go to get price pressures under control is another matter entirely.

The Fed’s hikes since the year began have already had an impact on the economy. If the Fed does hike several more times, those effects may be greatly amplified. The Fed obviously wants to avoid a recession, if possible, but may not be able to do so while raising rates aggressively.

Threat Of Recession

The threat of recession may keep markets alert in the coming months and could keep stocks and risk assets at bay. A recession would not only affect risk assets, either but could also choke off demand for gold and other perceived safe haven asset classes. Recent troubling Chinese economic data may also drive down demand for gold and metals and could put the global economy into recession.

The gold market may take its cues from the health of the global economy as the Fed continues to hike interest rates. There may come a point, despite whatever the Fed says, that the central bank sees fit to pause or even reverse course. That may not occur until sometime early next year, but if it does, gold could potentially rocket higher in rapid fashion.

For the time being, the yellow metal may react bearishly to additional rate hikes and hawkish Fed rhetoric. While prices could slide further into the end of the year, long-term investors should not be deterred. Gold at current levels is already akin to being on sale. Any further declines in the market may only exaggerate the sale price for a period of time.

An Uneventful Week

Weekly Market Review: Gold Set To Finish Strong

The gold market appears ready to put in a strong finish to the trading week. Spot gold is up over $9 per ounce as of this writing and is approaching the $1,720 area. The yellow metal is likely being driven by a sharp drop in the Dollar Index today. The dollar has come off its lows, however, and the gold market has come off its highs.

An Uneventful Week

This week was another uneventful week for the gold market. The bears did get some work done and nearly took prices for a test of the $1,700 level. As has been the case previously, the bulls decided to step in and buy as prices approached the $1,700 area and the market now has some distance between spot prices and $1,700. Whether the bulls can maintain this distance or build on it remains another question.

The back-and-forth price action in gold may continue until the Fed meets again later this month. The Fed has recently laid out its thoughts, for the most part, but changes could always be made based on the recent data stream. Both the U.S. and China have shown some weakness in recent data, and as the globe’s first and second-largest economies, that could spell trouble for the markets in the months ahead.

Fed Needs To Watch Its Step

The Fed may need to be increasingly careful as it looks to continue hiking rates aggressively. As recently as a couple of weeks ago, some market participants felt the Fed could begin to pivot away from its inflation fight. That does not appear to be the case, however, and Chief Powell has now made it abundantly clear that they intend to get inflation to desired levels before giving up.

The biggest question for markets right now may be whether the Fed actually has the tools necessary to calm inflation. During the last period of rampant inflation, Paul Volcker took interest rates to 20% to get price pressures under control. While such a move may or may not be necessary currently, one has to question if the Fed would be willing to take rates that high.

Is The Fed Unwilling To Do What It Takes?

If the Fed is truly unwilling to do what it takes to get inflation under control, then one has to wonder what the central bank could be doing early next year. The Fed seems to want to fight the notion that it will reverse course and start easing again. Markets are now pricing in string odds of either a 50 or 75-point hike this month. The Fed will also be meeting again before year’s end and could raise rates even more before 2022 comes to a close.

 

Source: Investopedia.com

What the Fed might do next year should be on everyone’s minds. It does seem clear, after all, that stocks and risk assets are unlikely to remain higher or even stable in the face of rising rates. Public and political pressure is likely to mount on the Fed as it takes rates higher and squeezes investors.

When Might The Fed Cave?

At what point might the Fed cave? Some analysts are of the opinion that the Fed will hike rates a couple more times before reversing course on policy. If nothing else, the Fed could hike a few more times and then decide to take a pause. Whatever the Fed decides to do, more economic pain will be on the way. If you are worried about economic pain, explore your options for gold ownership now.

That economic pain may keep a floor under gold prices in the months ahead. While gold can be sold to meet margin calls and for overall risk aversion, it is also oftentimes purchased during periods of time when investors just want to hang on. That is likely to be the scenario once the new year gets underway and gold could stand to benefit handsomely if the Fed does not deliver.

What Might The Fed Do?

Monthly Market Preview: Will September See Gold Move After The Fed Meets?

The gold market has been relatively quiet in recent months. Moving primarily sideways, gold prices have oscillated between $1,700 and $1,800 for weeks now. That trend may change this month, however, as the next FOMC meeting is set to take place later in the month.

What Might The Fed Do?

The Fed and questions about what it may or may not do have been a central catalyst for market price action in recent months. For a time, many seemed to believe the Fed could start to pivot away from its battle against inflation. While this did not necessarily mean the Fed would begin to loosen policy again, it did mean that the Fed may hike rates far less aggressively or even take a pause from rate hikes altogether.

Recent commentary from Fed Chief Jerome Powell seems to suggest otherwise. Powell recently gave a speech at the conclusion of the Fed Symposium in Jackson Hole, Wyoming. He suggested the Fed would stay in the fight against inflation and that it viewed inflation as the greatest risk to the economy.

If the Fed is determined to bet inflation to its desired level of 2% annually, how will it get there? Recent aggressive hikes from the Fed have slowed the economy but thus far have not shown to be very effective against price pressures. The Fed is extremely unlikely to take rates where they may need to go to slow inflation (20% or so?) so how does it plan on accomplishing its goal?

Key Questions That Need Answering

That is the question that will need an answer in the months ahead. Some data have recently shown that inflation could potentially have already peaked. If that trend continues, the Fed may find itself in good shape. If, on the other hand, the data stream shows inflation remaining near a 40-year high, the Fed could be in trouble.

Markets are currently betting on a large rate hike this month. The odds are pretty evenly split between a 50-point hike and a 75-point hike. If the Fed hikes less than 50-points, it could send a dovish message to the markets. if the Fed hikes more than 75-points, it could send a hawkish tone through markets.

How Will The Fed Proceed?

Once this month’s FOMC meeting is over and done with, the Fed will have to figure out how it wants to proceed going forward. There is currently little to no reason for the Fed to stop hiking or reverse course and begin easing. Markets have tolerated higher rates so far, although the market’s tolerance of higher rates could start to wear thin in the coming months.

 

Source: Bloomberg.com

That is what could be the true test for the Fed and its inflation battle. How might the Fed handle markets moving significantly lower? If markets were to really crater, surely there would be increasing pressure on the central bank to halt its rate hikes or even start undoing them. If the Fed elects to stand fast at that point, it will preserve what little credibility it may have left.

If the Fed elects to give into that pressure, however, it may not only ruin its reputation but may also put the economy into an extended period of stagflation. The Fed has backed itself into a corner and now will have to follow through to avoid problems that are even worse.

Volatility May Remain

Whatever the Fed does or does not do, markets may remain jittery for some time. The word “recession” has already been tossed around quite a bit, and if the Fed keeps tightening that term will likely become increasingly popular. The U.S. could even be in a recession already. Whether it is or not, tough times may be ahead for the U.S. and global economies.

That makes right now the ideal time to explore your options for gold ownership.

Bears In Control

Weekly Market Preview: Bears Trying To Take Control

The gold market is seeing some selling pressure Tuesday as the new trading week gets underway. Investors are returning from the long Labor Day Weekend, and trading volumes should begin to return as well now that investors have completed last-minute vacations before the start of school.

Bears In Control

The bears appear to be in control of the market at this point. As they posh spot prices towards the $1,700 level, a major technical test could be seen today or sometime this week. If unable to hold the $1,700 level, the market could see selling pressure intensify.

Among other bearish factors the metal has working against it currently, the dollar is showing strength on this busy economic data release day. The dollar hit a fresh 20-year high today on a slumping euro. The euro currency is being hit today as Russia stated it would not reopen a gas pipeline into the region.

Energy Markets

The energy markets are a factor for gold today and may continue to be so in the months ahead. OPEC has decided to cut production by 100,000 barrels per day starting in October to give prices a boost. Even after its recent decline, the oil market is still elevated, trading near $90 per barrel currently.

 

Source:premiumtimesng.com

Higher crude oil prices could come at a bad time. Inflation remains near 40-year highs already. A sharp rise in the price of crude could cripple consumer spending and could make a recession a reality in a short period of time. Oil may not only exert its own influence but may also influence the prices of other commodities as well, making the inflation problem even more challenging.
Speaking of inflation, the Fed will be meeting again later this month to decide if rates will be raised again. The notion of the Fed pivoting away from its inflation battle may now be gone, and the Fed may be likely to continue with its aggressive rate hikes for the rest of the year if not longer.

Markets May Come Under Pressure

Should the Fed continue on its aggressive hiking path, stocks and risk assets could come under serious pressure. The stock market has been strong in recent weeks. That strength is nothing unusual in a bear market, however, and could very easily be quickly dissipated. The market could then go on to make new lows, and many investors could be left looking for places to put capital to work.
Gold could potentially see much of that capital leaving equities and coming into the metal. Gold could have some serious roadblocks as well, however, including the need for investors to sell and meet margin calls, and a general sense of risk aversion.

Gold May Wait Until Next Fed Meeting

The gold market may not do much until the next Fed meeting later this month. Markets are likely looking for further clues about the Fed’s outlook and its plans regarding interest rates and policy. Markets are now pricing in near-even odds of a 50 or 75-basis point hike this month. If the Fed hikes more or less than that, it could be market-moving and fuel some volatility.

Until the next Fed meeting, the market will take its cues from the data stream and chart-based trading. The bears currently have the edge and are pushing for a test of the $1,700 level. This area was breached on the downside last week. The bulls made a quick turnaround, however, and rapidly took prices higher again to provide some breathing room.

The bulls have thus far done a good job of absorbing the selling pressure within the market. Whether that can be maintained if the market pushes lower is unclear. A steep decline below $1,700 could set the stage for a fresh leg lower in value and for more bulls to throw in the towel.

With the long-term narrative remaining highly bullish, however, a downturn in gold could prove to be short-lived.

Non-Farm Payrolls Data

Weekly Market Review: Gold Seeing A Bounce On Jobs Data

The gold market is seeing a bit of a rally Friday to end the trading week. The yellow metal will still end the week on a sour note, however, as the bulls have been unable to hold prices at or above the $1750 level. After dipping below $1700 on Thursday, the bulls are back in action today, sending prices higher and trying to distance the market from the $1700 level. 

Bearish Issues

The market has been under pressure most of the week as numerous bearish issues took hold. A stronger dollar, rising bond yields and more all pressured the gold market this week and may continue to do so if present trends continue. The threat of a higher dollar may keep the gold bulls subdued for the months ahead until more clarity is seen surrounding the Fed and its plans for interest rates. 

Non-Farm Payrolls Data

Although the headline number of jobs created today was a positive (315,000) compared to consensus estimates of 295,000 jobs, the data was not all roses and candy. Both June and July data were revised lower, with June seeing a sharp revision lower of over 100,000 jobs. In what may be a positive for gold, wages did not increase as much as expected. 

Source: yahoo.com

 

Average hourly wages increased by .3% while estimates were looking for a rise of .4%. The lower-than-expected wage increase could be another sign that inflation has in fact peaked already and could continue to lose steam in the months ahead. The notion of easing inflation pressures may seem bearish for gold, but given the Fed and its plans for aggressive rate hiking, it could keep the central bank from raising rates much further and that may be bullish for gold. 

Fed Funds Reaction

Within hours of the non-farm payrolls release, the data had not been much of a factor in Fed Funds bets. Markets are still seeing a 75% chance the Fed will raise rates by another 75-basis points later this month. Although that could change, Jerome Powell appears to have gotten his message across that the Fed means business and will battle inflation until no longer necessary. 

If the Fed does stay the course, stocks and risk assets may roll over again and probe new lows. If the Fed elects to take a pause from hiking rates, however, or even decides to start easing, markets may find a sense of comfort that could allow stocks, risk assets and gold to all move higher. 

Major Capitulation Coming?

As the gold market approaches the $1700 level, the chances of a major capitulation sell-off increase. Gold’s multi-decade uptrend comes in around the $1675 area, and if broken could send the market sharply and rapidly lower. The bulls will put up a fight, but it is unclear if they will have the necessary ammunition to prevent a further sell-off in the market. 

The technical outlook for gold has not changed. The $1700 and $1800 levels remain the key areas for the bulls and bears to conquer. Until one side is breached on a closing basis, the market could remain choppy and sideways for some time. Thursday saw prices dip below the $1700 level but they have quickly come back today and are trying to put some distance between them and that level. 

The yellow metal may not do much until the next FOMC meeting this month. Once the Fed meets and decides how much they want to raise interest rates, gold could see more inflows. Until that time, however, the market may remain jittery and even embark on one or more unsustainable moves higher or lower. This may be referred to as market noise, as the long-term prospects for gold remain solidly higher.

The Economy is Slowing

Weekly Market Preview: Gold May Be Set To Bounce

The gold market is seeing a bit of a bounce in early Monday action as the Powell sell-off in stocks continues. The gold bulls have their hands full, however, as bearish charts, a stronger dollar, rising bond yields, and a hawkish Fed all take a toll on sentiment.

Powell Strikes a Hawkish Tone

Stocks are lower today as investor risk appetite remains dented following Jerome Powell’s speech on Friday. The end of the Fed Symposium in Jackson Hole, Wyoming came with some fireworks as Powell outlined the thinking and plans of a highly hawkish Fed. His speech was deemed to be more hawkish than expected and has sent fear into the hearts of investors.

The next FOMC meeting is still weeks away. There is significant time, therefore, for the Fed to examine the data stream and rethink its position. Given Powell’s speech and previous statements, however, it seems extremely unlikely that the Fed will take a pause or reverse course.

If the Fed stays on its current path, troubles could be ahead for the economy and markets. Worries about a recession have already increased dramatically in recent months. If the Fed looks to slow the economy even further, those concerns are likely to mount substantially.

The Economy is Slowing

The Fed recently acknowledge the economy is slowing. The labor market remains quite strong, however, and the economy has not yet slowed enough to put a major dent into inflation which remains near 40-year highs. The Fed may need to continue hiking rates and hiking them aggressively to achieve the desired effect.

If the Fed keeps tightening policy, the dollar and bond yields could also continue to rise. This could have a bearish impact on the gold market and could keep the bulls at bay for the time being. The bulls have thus far absorbed the selling pressure well, but additional pressure may become too much for the market to bear.

Despite Powell’s speech last week, some may still feel the Fed will reverse course sooner rather than later. This is a possibility, although it now seems nearly certain that the Fed will keep hiking through the end of the year. Should the central bank eventually decide to start easing again, it could be a major catalyst for higher gold and a weaker dollar.

Other Factors That May Affect Gold

In addition to the Federal Reserve and its plans, the gold market may also have to monitor other situations as well. The threat of a Chinese invasion of Taiwan, for example, could linger over markets for months to come. The Russian invasion of Ukraine and the Pelosi visit to Taiwan may make such a scenario more likely.

 

source: BBC.com

Should China decide to invade Taiwan, the U.S. and western forces would likely get involved. This could, in effect, turn into WWIII and may cause a massive uprising in financial markets all over the globe.

The yield curve remains inverted. Some key pieces of economic data are showing weakness or signs of cracking. Some have even suggested the U.S. is already in recession. Whether the country is in recession now or there is one to come, some tough times may be ahead.

As U.S. markets deal with a recession, or the threat of one, volatility may again rise in the months ahead. As volatility climbs, an increasing number of investors may see fit to buy gold for its perceived safety. On the other hand, however, is the fact that investors could be forced to sell their gold to meet margin calls if markets fall enough.

Volatility in gold has largely dried up in recent months. The market could be getting ready for a significant move, however, and that move may be larger the longer the metal remains sideways.

Has Powell Backed The Fed Into A Corner?

Weekly Market Review: Powell Seen As More Hawkish Than Expected

The most important moments for gold this week have now come and gone. In a speech earlier today, Fed Chairman Jerome Powell struck a surprisingly hawkish tone. He said the central bank will stay with its restrictive policy stance for some time while reiterating the central bank’s goal of bringing inflation back down to the 2% target.

Has Powell Backed The Fed Into A Corner?

Not only did Powell suggest the Fed would keep policy tight for some time, he also warned against the risks of loosening policy prematurely. Powell acknowledged that rising interest rates are slowing growth. He added, however, that those risks are outweighed by inflation.

If the Fed was in a corner before, it is now really in a corner. Seemingly suggesting the Fed will continue to hike rates aggressively, the Fed may now be forced to do exactly that, regardless of the economic consequences. Should the Fed at some point elect to reverse course now, it could lose any remaining credibility it has within the market.

Powell acknowledged the pain that rising rates can cause to households and businesses. He suggested that inflation would be a worse pain, however, and that without price stability the economy does not work for anyone.

 

                                     source: Bloomberg.com

Powell also acknowledged the slowing effect of previous rate hikes but said he also sees pockets of strength. In other words, more work needs to be done and the Fed is willing to do it.

Powell’s commentary did provide markets with some insights into the Fed’s thinking. They did not, however, provide what the markets were looking for. The lack of forward guidance by Powell may keep investors guessing in the months ahead. The CME FedWatch Tool still shows odds near evenly split for a 50 or 75-basis point hike next month.

What Might The Fed Do After September?

What the Fed does beyond next month may be the bigger question. The Fed could take a slower approach and allow more time to see how its previous hikes affect the economy. It could also take a complete pause and wait to hike further altogether. After Powell’s speech today, however, it seems increasingly unlikely the Fed will consider taking rates down again anytime soon.

Many analysts felt that Powell’s speech did not reveal anything new. No signal was provided for the meeting next month and the Fed will not make a major U-turn next year. Both of these things have already been widely discussed by other Fed officials and there is a lack of anything fresh that investors may use to position themselves for the Fed.

Powell May Have Invited Second-Guessing

As investors are kept second-guessing the Fed and what it may do in the months ahead, markets could see another round of volatility. Stocks have recovered much of the lost ground in recent months, but that is nothing new in a bear market. Stocks will often come roaring back, in fact, and seemingly recover several times before rolling back over and going lower than before.

If markets do encounter increasing volatility, gold and other perceived safe-haven assets could stand to benefit. Although gold has not moved higher in recent months, it has also done a good job of absorbing any selling pressure. Both the bulls and the bears have been unable to sustain movement higher or lower. That trend may be set to conclude and conclude sooner rather than later.

For the time being, gold remains stuck in a range and moving mostly sideways. The key technical levels of $1,700 and $1,800 remain in focus. The bulls have been unable to produce a close above $1,800 and the bears have been unable to produce a close below $1,700.

Given the metal’s lack of volatility and movement in recent weeks, it seems to suggest that whichever side is broken above or below first could dictate price action for months to come. Visit us online today to explore your options and get started!

Dollar Strength

Dollar Taking Charge

The gold market is kicking off this new trading week on a weaker tone. Spot prices have declined below the $1,750 level in late morning action Monday as the bears look to exert control. The dollar has been a major bearish factor for gold today as it hit a five-week high and is back near 20-year highs.

Dollar Strength

Dollar strength has been a major obstacle to higher gold for months now. The currency has likely seen significant benefits from the Federal Reserve and the notion it will remain aggressive toward monetary policy. The Fed has raised rates more aggressively than previously estimated thus far, and could continue to do so when it next meets in September.

Following the last FOMC meeting at the end of July, some analysts believed that Chairman Jerome Powell was planting the seed for the Fed to pivot away from the inflation fight. The markets do not like higher rates, and as the Fed hikes aggressively, the chances of a recession rise.

Will The Fed Avoid Recession?

Some feel the Fed will want to avoid a recession at all costs. Others think the Fed will remain aggressive and continue hiking rates to calm price pressures that remain near 40-year highs. Having already stated previously that it believes inflation to be the worst risk to the economy, the Fed is likely to continue on its current path.

If the Fed does keep taking rates higher, pressure is likely to build on it to take a pause or even reverse course. This pressure may not just come from the public, either, but could come from politicians and government officials as well. As pressure mounts on the Fed, it could become increasingly difficult to stay on its current course of higher rates and balance sheet shrinkage.

                                                                          Source: cmegroup.com

The Fed is certainly a big deal for markets and will remain to be such in the months ahead. The Fed is not the only factor affecting markets, however. In addition to the path of monetary policy, markets must also grapple with numerous geopolitical issues. The war in Ukraine, for one, and the threat of war in Taiwan, for another.

Geopolitical Risks

As the geopolitical risks mount upon markets, the Fed could be forced to view things differently. A Chinese invasion of Taiwan, for example, could leave the U.S. and west with no choice but to get involved. This could in turn be the beginning of World War III, and markets would likely not like what they see. This could, in turn, only add to economic risks and heighten the likelihood of a recession.

For the time being, gold remains stuck in neutral territory. The market has been unable to produce a close above the $1,800 level or below the $1,700 level. Until it does, the yellow metal could remain mostly sideways with little volatility. Once one of these levels is pierced on a closing basis, however, volatility could expand as the market begins to make a sustainable move in that direction.

Long-Term Bullish Narrative Remains Intact

Although recent price action may give the bears a slight edge, the long-term narrative for gold remains highly bullish. The U.S. and other nations are still riddled with massive, unpayable debt loads that will have to be dealt with at some point. The U.S. Dollar, as well as other major fiat currencies, will still lose value over time as paper currencies always do. As these currencies become increasingly worthless, the investing public will have no choice but to seek out viable alternatives.

As an investment vehicle that has been used successfully for millennia and with zero counterparty risk, gold may be the best long-term option to act as a reliable store of value and protector of wealth. At some point, likely sooner rather than later, its price will reflect its importance.

Inflation and The Fed

Gold May Be On Hold Until Next FOMC Meeting

The gold market is losing some ground on Friday as the trading week comes to a close. The last week was nothing to write home about for gold, as the metal did not do much in either direction. The bulls have given the bears some more operating room, however, as prices have dipped from near the $1800 level. Standing near the $1750 level today, next week could see either camp make a run.

Inflation and The Fed

Inflation and the Federal Reserve’s actions towards it are still fueling marketplace action. Expectations for the next FOMC meeting, next month, are likely to become an increasing market focal point in the weeks ahead. The question is whether the Fed will continue its fight against inflation and hike rates further or if it will throw in the towel.

Following the most recent FOMC meeting, Fed Chairman Jerome Powell suggested the Fed could start to pivot away from the inflation battle. While not saying so, Powell seemingly planted the suggestion within investors’ minds. The question of what the Fed may do has now become more of a discussion topic in recent weeks.

Despite Powell’s potential signal to markets a few weeks back, the Fed may very well continue on its current path and keep raising rates aggressively. Markets are currently pricing in near-even odds of a 50 or 75-point hike next month. Even if the Fed does hike at those levels, what might it say about its plans moving forward?

Fed Unlikely To Pivot?

Despite recent commentary, Jerome Powell may be unlikely to pivot away from the inflation fight. Powell does not want to become known as the second coming of Arthur Burns, the Fed Chair who let inflation run wild on his watch. Knowing the risks that inflation may pose to the long-term health of the economy, Powell may feel it is in the nation’s best interest to endure some short-term suffering for some long-term gain.

                                                                      Source: bloomberg.com

If the Fed does stay on its current path, the central bank would almost certainly put the country into recession, if it is not in one already. The economic costs could be significant, as the recession would likely last at least four quarters. Powell has certainly considered this and may decide to keep going regardless.

Inflation May Be Biggest Risk

The Fed has previously stated that it believes inflation to be the biggest risk to the economy. Allowing inflation to become entrenched would be a worst-case scenario, and the Fed seems willing to do what it can to avoid this pitfall. While a Volcker-era interest level around 20% seems extremely unlikely, the Fed may see itself doing the market a favor by taking rates significantly higher from current levels. Rates are, after all, still very low compared to historical norms.

The markets have a few more weeks of the summer doldrums before volumes begin to return in the second week of September. Gold and other markets may be unlikely to make a sustainable move before then. Shortly after traders return from last-minute summer vacations, the Fed will meet again to discuss rates and policy.

Market May Move After Next Fed Meeting

After the next Fed meeting, the gold market could be ready to move higher or lower depending on what the central bank does and says. If indications are that the Fed will continue its aggressive hiking policy, gold could potentially be weighed down heavily. If the Fed takes a more dovish approach, however, gold could be off to the races.

The key technical levels for gold remain unchanged. The bulls need to produce a close above the $1800 level while the bears need a close below $1700. Whichever side sees a close above or below first may be the side of the market that prevails into the fall.