The gold market is off to a new month of trading. The month of July was largely a sideways month for gold until the bears finally broke it down a bit towards the end of the month. With the latest FOMC meeting now out of the way, investors can look forward to the September meeting and watch the data stream in the meantime.

Another Large Rate Hike

The end of July saw the Fed raise rates again by 75-basis points. July 27th also, however, seemingly reignited the vigor within the bulls. The gold market has taken off since then, rising by nearly $100 per ounce in the process.

The 75-point rate hike was not unforeseen by the market. In fact, the markets may have breathed a sigh of relief that the Fed did not hike by 100-points or even more. While the Fed may hike by 75-points again in September, there is also a very good likelihood that the Fed will hike by less than that, if at all.

The markets will have plenty of time to form their opinions as there is no August FOMC meeting. This means that investors will have an extra month’s worth of data they can parse before betting on what the Fed may or may not do.

                                                                                                                                                                                 Source: access-wealth.com

Despite many feeling that last week’s FOMC commentary was not as hawkish as previously thought, the data still points to the fed hiking further. Inflation remains near 40-year highs, and the Fed could have a long way to go before getting it under control.

The Fed may know and understand that it could take interest rates at or near 20% before getting price pressures under control. This Volcker-era type of interest rate would likely not be well-tolerated today. In fact, higher rates (still under 3% though) may have already put the economy into a recession.

Market Technicals

Not knowing what the Fed may do in September may give the gold bulls some room to run over the next several weeks. if the bulls are able to produce a close above the $1800 level, it could attract significantly more buying interest. A fresh wave of buyers could potentially drive prices higher, possibly for a test of the $1900 area.

The bulls may require some fresh inputs, however, to put prices on a sustainable run higher. Not much has changed in recent months. Barring any fresh developments from the war in Ukraine, tensions with China, or the dollar, the gold bulls could find themselves running low on gas shortly.

The dollar has been hanging around a 20-year high. Its strength has been largely built on rate expectations, however, and could be vulnerable to any changes in the rate outlook. Anything that signals a potential slowdown from the Fed, whether it be slowing inflation data or weaker economic data, could cause selling in the currency.

The higher dollar has likely been a major obstacle to higher gold prices. If the dollar begins to weaken, it could set the stage for a run higher in gold that may prove to be more sustainable. The more the dollar declines, the higher gold may potentially go.

The technical picture for gold remains largely the same. The bears attempted to take prices below the $1700 level but failed to hold them there. $1700 remains a near-term target for the bears on a closing basis. The bulls need to produce a close above the $1800 level before getting excited.

A Test Of $1800 May Be Coming

The last few days have put the bulls within striking distance of $1800. The level could be tested in the coming days. A close above it could establish bullish strength and a strong rebound from recent lows. Forcing more shorts to cover along the way, fresh buying interest could send prices sharply higher in short order.

The long-term bullish narrative for gold remains the same and unchanged. If you want to get into the physical gold market, now may be the time before the market explodes higher.

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