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.

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.

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