- Gold markets rallied a bit on Friday to reach toward the $1800 level in the spot market.
- It’s worth noting that we have seen a lot of selling pressure in this area, so it does suggest that we are going to see a big fight on our hands.
- It’s also worth noting that this market has a high sensitivity to interest rates, something that a lot of people are focusing on right now.
The Future of Fed Monetary Policy
There’s a big argument right now between traders as to whether or not the Federal Reserve is going to continue to tighten monetary policy in the face of significant inflation. The Federal Reserve has stated repeatedly that they are in fact going to do so, but Wall Street does not seem to believe that. They have caused a massive squeeze on certain risk assets under the idea that the Fed will eventually bend their way. If the Fed does in fact end up loosening monetary policy, that is good for gold. Looking at the interest rate markets, it appears that a lot of people believe they will.
That being said, there’s also the possibility that perhaps people are buying bonds for the fact that they see a recession coming. We have a lot of crosscurrents at the same time, so it’s difficult to imagine that the trade in gold is going to be simple. However, I have a couple of levels that I am paying close attention to, beginning with the $1815 level. If we can break above that level, then it’s likely that the market could go looking to reach the 200-Day EMA.
On the other hand, if the market were to break down below the 50-day EMA underneath, then it opens up a lot of selling pressure. The $1750 level underneath could be a significant support level, as it had been a previous resistance barrier. In this scenario, we would probably see the US dollar pick up quite a bit of strength as well. Overall, I think we are at the major inflection point and will have to watch where the next squeeze comes from, and which direction it kicks often. Once we do get a move, it could be rather sizable and profitable for those who are patient enough to wait for it to show itself.
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