The gold market is lower on Monday as the new trading week gets underway. The yellow metal is being hit by a variety of bearish factors today, as a stronger Dollar Index, higher yields and lower crude oil all take a toll. The dollar hit a 6.5 month high today as treasury yields are now at multi-year highs. The gold bulls also still have a hawkish Federal Reserve working against the market keeping a lid on upside price movement right now.
Many investors may be feeling it’s time to be “risk-off” as the possibility of a U.S. Government shutdown seems to be increasing. Congress will be returning tomorrow to vote on a measure that may keep the government open and avoid a shutdown, at least temporarily.
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Potential for Gold Surge if Geopolitical Situations Escalate
The gold bulls are likely frustrated that many of the sources of safe haven demand for gold have not effectively driven such demand. The war in Ukraine, the potential for a Chinese invasion of Taiwan and other factors could all be viewed as being bullish for the yellow metal. The armed conflict has not fueled much demand for gold as of yet, and it may not do so unless the situation deteriorates further. A Chinese invasion of Taiwan would almost certainly cause the United States to become involved militarily, and such a scenario could be the beginning of the Third World War. This would, in turn, have a likely impact on the gold market and fuel safe-haven demand that could send the metal sharply higher in a short period of time.
“Buckle up. 2023 could be a rocky ride.”–Sr. Precious Metals Advisor Damian White
Gold’s Price Potential Amid Rising Rates
The gold market is also being limited by higher interest rates. The Fed has thus far maintained its hawkish monetary policy stance and may be unwilling to begin taking rates lower for some time yet. As long as interest rates remain near current levels or higher, the bulls could struggle to mount a sustainable rally above the $2,000 level. That being said, gold could see higher prices despite rates moving higher if the right circumstances present themselves.
Gold’s Sideways Movement and Factors That Could Change the Trend
Hedge funds remain neutral on the price of gold for now. The CFTC’s Commitment of Traders Report for September 19th showed money managers increased their long positions by over 3,400 contracts. The net long position now stands at 47,390 contracts, effectively unchanged from the previous week. That figure represents a two-week low and gold has not done much on either side of the $1,950 level for weeks now. The market has, in fact, remained stubbornly sideways even since the summer doldrums concluded weeks ago. That is not likely to remain the case for too much longer, however, as numerous factors may hit the market and drive buying or selling to take it higher or lower.
Potential for Gold to Break Above $2,000 Per-Ounce
For the time being, the bears have the edge on the daily bar chart. A four-month old downtrend remains in place on the daily chart, and until it is negated the bears may have the advantage. The August lows around the $1,914 area are the next target for the bears, followed by the $1,900 level. The bulls, on the other hand, will first target last week’s highs around $1,969 and then look to take out the $2,000 level. A breakout above the $2,000 level, on a closing basis, could attract fresh buying interest into the market and propel it even higher.
A sustained move above $2,000 per-ounce could set the stage for a run back to previous all-time highs. Depending on the catalyst for such a move, the metal could move significantly beyond its previous all-time highs and do so in short order.