The gold bulls are trying to hold their own as the new trading week gets underway. Spot prices are just below the unchanged level in early action Monday as yields rise and as worries over Fed-induced recession ease. Recent declines in commodity prices may also be lessening the concern over an aggressive Fed being forced to tighten the economy into recession. These declines may be a clue that inflation levels have finally peaked and that price pressures could ease from here. 

Global Instability Yields Market Uncertainty

In other news, the Russian-Ukrainian war rages on. Russia has reportedly defaulted on its foreign currency sovereign debt. The default has not been declared by rating agencies, however, as these agencies withdrew their ratings from Russia once sanctions were imposed on the country. Speaking of sanctions, there appears to be more on the way. The Group of Seven industrialized nations has elected to impose additional sanctions on Russia. One of those sanctions is reportedly the banning of Russian gold imports. Given Russia’s current global standing and its massive gold holdings, an import ban has the potential to be quite crippling for a nation already under the strain of significant sanctions and economic distress.

Source: IMF.org

The gold market has spent another week in neutral territory. Neither the bulls nor the bears have been able to muster the power necessary to drive prices higher or lower. The lack of a sustainable move will subside, eventually, although it is unclear when that may occur. The metal could spend weeks or even months in the tight range it has found itself in before finally breaking out or breaking down. The question many investors will pose at that point is whether the move will prove to be sustainable or not. 

Gold will remain vulnerable to key data points and any major hits or misses within that data. Data that comes out better than expected may be viewed as a bearish factor for gold as it could clear the path for the Fed to continue raising interest rates. Any significant misses in data could be viewed as being bullish, as it could give the Fed something to consider with regards to raising rates. Regardless of what the data says, however, the Fed has tried to make clear that it intends to fight inflation with everything it’s got. This could mean more 75-basis point rate hikes, a balance sheet contraction, or even other means of shrinking the money supply. 

Bitcoin Bombs; Bullish Signals on Gold

The Fed now finds itself trapped in a corner as whatever it does is likely to have a bearish effect on markets, especially equities. Stocks have already seen heightened volatility in recent months combined with some sharp sell-offs. Stock markets could continue this trend in the months ahead if the Fed stays on its current path and keeps hiking rates. The downside potential for equities may keep a level of interest in gold and metals, and could even become the primary catalyst for an upside breakout back towards all-time highs.

Given the other bullish factors that could affect gold-including massive sovereign debt, dollar weakness, and global geopolitics, it may be difficult to imagine a scenario in which gold does not make fresh all-time highs in the coming years. 

The Dollar Index has been an obstacle for gold and could continue to act as such if the Fed keeps hiking. According to the most recent Commitment of Traders report, large speculators are the most bullish on the dollar since 2017. While there may be several reasons to be bearish on the dollar, such as massive U.S. debt, it isn’t easy to build a convincing case as the Fed appears intent on hiking interest rates further in the months ahead. If or when the dollar does eventually break, however, it could spell new all-time highs for gold as investors seek out its perceived protection and preservation of purchasing power. 

Gold may be the ideal asset class for those looking for inflation protection. Bitcoin and other cryptocurrencies are still struggling as their sideways price action looks set to continue. The downtrend in Bitcoin has stalled out, at least for now, above the $20,000 per token mark and the bulls may have a slight edge on the daily chart. The digital currency has thus far not shown a good ability to compete with gold as a store of value and could keep struggling until it does.

While there is certainly an argument to be made that Bitcoin and other digital assets are currently undervalued investment opportunities, all eyes are on gold as a more stable and bullish store of value in the short to medium terms.

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