The gold bulls are building on the 2% rally seen since the Federal Reserve raised rates by 75-basis points on Wednesday. The yellow metal is holding steady above the $1750 level as buyers have taken control in recent days. With spot prices now sitting just under $1764 per ounce, the bulls could rally the metal for a test of $1800 in the coming days.

Another Big Hike From The Fed

It has been a busy week for the gold market as the highly anticipated FOMC meeting has now come and gone. As expected, the Fed hiked interest rates by another 75-basis points, its second consecutive large rate hike. What really may affect markets was not the hike itself, however, but the commentary that followed it.

Fed Chairman Jerome Powell left the door open for September. The Fed could possibly utilize another large rate hike should conditions warrant, or it could go smaller or elect to not hike at all. The central bank will allow the data stream until then to determine what is called for.

The Fed’s commentary was less hawkish than some likely expected. After two larger rate hikes, some may have figured the Fed would maintain a hard line and keep its hawkish rhetoric intact. The fact that the Fed did not, however, could spell some changes in policy thinking down the road.

Is A Fed-Induced Recession Coming?

Investors have become increasingly worried over a Fed-induced recession for months now. After some recent weaker-than-expected economic data, some have suggested that the U.S. may be in a recession already. If that is in fact the case, the Fed may take special care at the remainder of its annual meetings. The Fed could hike rates less than expected or even pull a full reversal and begin lowering rates once again.

Should the Fed elect to lower rates to bolster economic activity, it could not only blow its credibility but could send the economy into a prolonged period of stagflation.

Inflation data could be the major area of focus for the months ahead. This morning, markets saw the latest release of the Personal Consumption Expenditures Index. The core reading of this index was hotter than expected, registering a rise of .6% last month. Consensus estimates were looking for a rise of .5%. The data shows inflation still running hot at 40-year highs.


Inflation Expectations

The gold market did not show much reaction to the inflation data today. That could be because the inflationary data may now become a double-edged sword. While inflation may continue to run hot, it could also cause the Fed to hike rates more or faster than expected. Stronger expectations for higher rates could be trouble for the gold market.

Expectations remain for inflation to cool in the months ahead. The next two months before the next FOMC meeting could see some significant changes in economic data, pointing to an inflationary slowdown. Should that be the case, the Fed would have more to think about at its next policy meeting. With two months until the next Fed meeting, gold could have room to move higher.

What Else Might Move Gold?

In addition to the Fed, the gold market has other possible influences that may move it. The war in Ukraine, for one, has the potential to be market-moving should it escalate even further. The Dollar Index is another major factor for gold. The greenback has risen for months now on the notion of an aggressive Federal Reserve and higher interest rates. Should the Fed signal it may take a pause or start lowering rates, the dollar could lose significant steam.

The technical picture for gold remains much the same. The bears are still in control of the daily trend. They will target a close below the $1700 level in order to attract a fresh wave of selling pressure. The bulls are looking to produce a close above the $1800 level to attract fresh buying interest. The market has already bounced quickly from under $1700 to $1766 in just days.

The bulls could take a shot at the $1800 area in the days ahead. A close above this level would be a victory. A failure at this level, however, could set the stage for another run lower.

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