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Is Gold's Value a Myth?

The past two years have been historic for gold against the US Dollar (XAU/USD), as XAU/USD crossed above the 2000 level for the first time in history in 2020, and then again in early 2022. However, shortly after touching resistance in March this year, the pair began trending downward, recently hitting key support at 1700. With year-over-year inflation still roaring at 8.5% as the US experiences a technical recession (two consecutive quarters of negative GDP growth), it may seem strange that gold, renowned as a perennial safe haven asset, has not been performing well. Now is the perfect time for us to discuss, and ask: is gold's value a myth?

Gold’s Reputation

Gold has a revered status among many traders and investors, with some economists and financial gurus even believing gold’s fundamentals guarantee its value as a sort of ultimate security. Some of this is rooted in nostalgia for the gold standard, and the belief that USD only had real value when it was backed by gold. This belief is an instance of a monetary theory called metallism.

However, even those who don’t subscribe to metallism still have reason to be concerned about the risk inherent to today’s fiat currencies, which are backed by governments rather than commodities. Worries about fiat money are often central for gold bulls, as they consider gold to be a perfect alternative to the waning purchasing power of cash. For the sake of evaluating these biases, let’s consider compelling arguments for both gold bullishness and bearishness.

The Bullish Case for Gold

Although there are many reasons to be bullish on gold, there appear to be three primary ones. First, gold is a scarce resource; there is a finite amount of gold in the earth, and unlike certain commodities like lumber and grain, the total amount of gold in existence cannot (practically) be manually increased. This inherently limited supply reinforces gold’s millennia-long precious metal status.

Second, demand for gold has persisted since the earliest recordings of human civilization, only increasing exponentially as the earth’s population grows. While much of consumer spending on gold is still grounded in demand for jewelry and other luxury items, gold is also used across many industries to create computer chips, dental crowns, and more. Much of this demand also comes from gold investors, of which there are many, including the Federal Reserve.

Third, gold is a store of value, retaining purchasing power while a fiat currency’s purchasing power gradually (or rapidly) declines over time. This is because, as governments and central banks coordinate economic growth and expansion, increasing a given country’s money supply accordingly, inflation occurs as consumer demand outpaces the supply of goods and services. Gold is exempt from this process since it cannot be printed ad infinitum, and its purchasing power is bolstered with time as investors seek a hedge against inflation.

The Bearish Case for Gold

There are also many reasons to be skeptical of gold as an investment, including these three. First, while gold is indeed scarce, this does not mean the supply of gold is static, as mining production increases over time. According to Statista, global gold production has even surpassed 3000 metric tons per year several times this past decade, which means increasing availability for consumers.

Second, though there is indeed consistent demand for gold, over 33% of this demand comes from investors, including central banks. While gold is certainly a store of value to some degree, the fact that approximately one-third of spending on gold comes from investors seems troubling, as some of this could be reducible to speculation. This is especially worth considering since central banks are effectively subsidizing the gold markets with additional demand, which may not last.

Third, although fiat currencies and the foreign exchange market lend permanent precariousness to the value of money, XAU/USD’s performance has also been volatile and erratic. While XAU/USD is up 5000% since 1971, it has been a rocky road getting there, with many consecutive years of stagnation and decline as well as jumps. Considering the effect of monetary policy on XAU/USD, as well as dips following historic highs, there is reason to believe gold’s value will continue dropping amid the Fed’s aggressive rate hikes.

Conclusion: Truth, or Fiction?

The bad news is the world has seldom encountered a financial situation like the one we are currently in. Conventional Keynesian wisdom prescribes that governments and central banks spend their way out of recessions, and tax and tighten amid high inflation; however, this doesn’t take supply-side issues into account, or consider these two phenomena occurring simultaneously. Thus, we are in uncharted waters, and it is unclear what effect this will have on XAU/USD.

The good news is we still have recent historical data to work with, and new circumstances don’t render it altogether worthless. On top of this, these bullish and bearish arguments for gold are not mutually exclusive, as both can be helpful regardless of bias. While short-term bearish momentum seems to be more likely amid contractionary monetary policy over the next few years, this doesn’t negate existing demand for gold, and presents myriad buying opportunities for long-term bulls who may look forward to the eventual return of expansionary monetary policy. A1 Trading's EdgeFinder tool is also a helpful way to keeps tabs on XAU/USD sentiment and fundamentals going forward.

Key Takeaways

• After soaring in value over the course of the pandemic, XAU/USD experienced a sharp bearish reversal in 2022. With such mixed results in a time of high inflation and technical recession, it is worth wondering whether gold’s mythical safe haven status is outdated.
• Gold has a prominent reputation among traders and investors as being perhaps the most promising of all financial assets, destined to appreciate amid the inevitable uncertainty brought by fiat currencies. There are compelling arguments both for, and against, this.
• Three reasons to subscribe to XAU/USD bullishness are 1) gold’s scarcity, 2) persisting demand for gold, and 3) the depreciating value of fiat currencies, including USD.
• Three reasons to subscribe to XAU/USD bearishness are 1) gold’s increased availability, 2) subsidized demand for gold, and 3) XAU/USD’s erratic historical performance.
• Unfortunately, given the experimental nature of today’s monetary systems, it is impossible to know what gold’s value will eventually be. However, when money supplies continue expanding, there is reason to believe gold’s value will grow in correlation.
• As the Federal Reserve pursues monetary policy hawkishness in the face of 8.5% year-over-year US inflation, the XAU/USD downtrend seems likely to continue due to USD strength. Once the end of Fed tightening is near, buying opportunities may abound.

Gold is up another half percent on the day as investors weigh in a potentially weaker dollar based on a slowdown in US output. As we continue what is expected to be a volatile week, here are some reasons why gold may have finally snapped its downtrend and is gearing for a long term upside move.

Edgefinder Reading

gold

Our market scanner is giving gold a +2 buy rating. The Edgefinder gave gold a positive score one week ago, and the scanner accurately predicted a price swing to the upside. The metal got its first positive rating on July 27. Since then, price ran up another 3%.

Gold's Outlook

Gold's performance is largely tied with the economic state of the US as well as the geopolitical state around the world. In times of conflict, like the situation in Ukraine, gold will usually find upside. If GDP growth slows down or turns negative, investors find more value in gold over the market and the dollar.

In this case, we are experiencing both. However, according to last week's COT reports, the metal is not really seeing any considerable interest from major players. So, this week might be the first time in a while that institutions are putting more money into the metal.

Investors may be trying to price in a higher gold price on future contractions in GDP and job growth (NFP).

Gold's Breakout

Gold broke above the falling trend line on the 1D chart, marking a big bullish indicator for the precious metal. Price is now testing a big resistance level at $1787 but shows strong potential to the upside. If we can see a close above the falling trend line/resistance level, gold might get above the $1800s again. The Edgefinder is now giving gold a positive outlook as the US market continues to show reactionary periods in GDP. Price is exceptionally volatile too, so big price swings are likely to continue as we approach Friday's NFP news.

The fib drawing suggest major resistance around $1860 should price complete a break above the current resistance level.

Yen pairs are much more volatile at the end of the week. JPY is showing strength after the recent Fed move to raise rates to 2.50%. The yen index is up 1.45% at the time of writing this, but heavier moves are expected to come.

Why Yen Is Stronger

Demand for the currency stems from the performance of gold. As gold's price rises, so does the yen. According to Orbex, USD/JPY and gold are -94% correlated, meaning that JPY rises while USD falls during a rise in gold's price.

yen
US Advance GDP q/q

Gold's recent gains could also be a result of the latest GDP numbers this month. Recessions and geopolitical conflicts tend to favor the price of gold more and both of those events are happening now. Thus, a continual contraction in US output will likely give the yen a boost due to the positive correlation it has with gold and the negative correlation with USD.

Will Yen Keep Climbing?

The yen is historically a risk-off pair, so the uptrend is likely to continue. However, it's harder to tell which risk-off currency is better to choose from. So, it will probably look stronger to investors when stacked against minor currencies or risk-on ones.

Up against the USD, however, JPY does not look promising. We're looking at GBPJPY, EURJPY and CADJPY on the short side while CHFJPY and USDJPY are more questionable.

Yen Setups

GBP/JPY

yen

This pair looks bearish as a potential momentum shift may have occurred on the 1D timeframe. Price is making lower highs and had a fake breakout from a wedge pattern. The pair may test the bottom of the rising trend line in the wedge. If that happens, we should watch for a break underneath and a fall to the 160.500s.

EUR/JPY

yen

EURJPY has already broke underneath a rising trend line on the 1D timeframe. It also established a lower low which suggests that price wants to continue lower. If the pair closes below that trend line and 136.900s we might see another leg down to the 132.800s.

CAD/JPY

yen

Similarly to the USD, CAD is looking mostly stronger than the yen. However, price did cross under a falling trend line and is continuing to fall lower. Price maty fall to the 101.900s level before finding support. A double top lies around 107.

Tomorrow, the FOMC outlook will give investors a gauge on what could come next for the US economy and USD. This news will be followed up with the new interest rate which is expected to go up by another 75 basis points. Here are the best pairs to trade before we get the news.

EUR/USD

best pairs

EURUSD caught support as price fell to the downside and touched a lower low on the 1H timeframe. There is a chance for upside, but the rally has not been very promising or strong in a sustainable way. If price does see more of a rally, it could touch 1.02700s before retracing. However, it looks like price wants to continue to the downside after breaking under support in the 1.01300s.

Gold

best pairs

Gold struggles to get out of the support zone as long setups have only been working for quick and volatile moves upward before retracing back to new lows. Price still has support around the $1670s but could also come up to test the falling trend line on the 1D timeframe or resistance in the $1780s. An interest hike could take the metal lower, so price may come down to the second price target.

USD/JPY

best pairs

USDJPY hit a key support level on a rising trend line on the 4H timeframe. Price bounced from that level and has formed higher lows from there. Should price continue to steadily climb, there is resistance above at 137.500 and close to 139.

SPX500

best pairs

Stocks retrace on big tech earnings anticipation and even the recession-proof stocks like Walmart on a cut in profit outlook. Some support lies about 10 points below current price and cleaner support sits below that around $3744. Signs of the bear market rally being over might have started, and we may return to the lows of $3640 or lower.

AUD/USD

best pairs

AUDUSD could be trying to go higher towards resistance around 0.70455 on the 1D timeframe. Price could also retrace from the current resistance level on the falling trend line with support below at 0.68301 and a previous bottom at 0.66821.

Gold dropped nearly 1% this morning before finding a bottom and showed signs of rejuvenation. Settling in the $1600s, the metal saw little to no momentum to the upside for some time. But now there could be a good reason for the metal to start moving back higher again.

Big Economic Slowdown

If the Fed continues to raise rates, output will fall. Because the central bank wants to hike more and more aggressively (from .25% to .75%) this will only increase the slowdown. Businesses will have to start spending less as the amount of layoffs climb.

Goldman Sachs predicts that the job market will come in much lower going into the third quarter. The US saw nearly 400K new jobs added last month, but now they think it will shrink by over half that to a mere 150K.

Non-Farm Payroll is still adding jobs but at a decreasing rate. One key thing that drives the gold market higher is a struggling economy, and this is what investors could be trying to price in.

There is the question, however, that the Fed may consider loosening their breakneck policy on raising rates, but chairman Powell has yet to say otherwise. He stated in his last meeting that him and the central bank have an unconditional obligation on this inflation curb.

gold

COT data still shows that big money is decreasing long contracts from last week, but this week might be showing something different based on price action. We can look at some trade setups to see when big money starts buying the metal again.

Gold Key Trading Level

gold
gold

The images above are the price chart of gold paired with COT activity. We can see that price and COT data are closely correlated. There is also a pattern with every time the metal hits our second price target. Institutions start pouring money back into the commodity and send price to the $1900s and $2000s. So with that in mind, we may start to see gold move higher from this area.

The metal fell down to the $1680s which has served as a multi-bottom level of support. Each time the price has dropped to these lows, there was an eventual shift that sent price much higher. As gold hits our second price target, it's starting to look more attractive. Should the Fed continue their rate hike pace, gold could very likely find some more upside.

Price targets we are looking at for the short run are $1719, $1750 and $1780. Heavy support sits at $1679.

A lot is going on in the market right now, and investors have to decide where to put their money. Gold is one of those assets that still remains uncertain and price has reflected that. There are some key things could launch gold's price higher, however, a big indicator casts a shadow over the metal's near future.

Near-term Outlook on Gold

gold

Price hit a multi-bottom low before abruptly bouncing higher today. Due to the strength of this support level, gold has a good chance of catching a decent swing to the upside. So, near term, a long trade could be made out of this metal.

Today, gold's price sunk before the New York session on dollar strength. It seems like there was a Friday selloff as investors turn to liquidate their risk-prone positions.

If price does run up, it probably won't get higher than the $1860s range if price even moves that heavily. Some might even argue that the metal will not be able to break above the falling trend line that has served as much resistance in the past. Overall, it looks like there is limited upside for gold in the short run.

Long Term Outlook on Gold

The long run, however, looks more promising. Inflationary pressures are not going anywhere any time soon. Conflict in Europe continues to cut supply and drive commodity prices higher. Economic growth is slow to recover as well. All of these things are drivers of gold.

This isn't to say that price may continue to fall to lower levels. There are key levels of support that could be good for building positions.

In the end, it's how you as a trader would like to go about this. Do you want to trade gold or invest in it for the long run? Building positions will take much longer but could end up being more profitable. If you don't feel comfortable in the long run, quick trades would work too.

The Big Warning

Something dire has entered on the bullion's price chart, something every investor dreads. A death cross pattern looms over investors' heads as the 50 day moving average gets real close to crossing under the 200.

The next couple of days will determine the overall strength of the market for gold. If the death cross ends up happening, we could see gold slash down to the $1600s and even the $1400s. This is extremely concerning for investors as they still try to decide where gold will move in the future.

Global inflation, company layoffs, economic sanctions, geopolitical conflicts and so on have investors shuddering from the thought of investing. Volatility has picked up well beyond expectations as recession fears loom in the forefront of everyone's mind. With all these issues, it's hard to tackle markets when we have been so used to different monetary policy, risk-on sentiment and economic growth. As the FOMC meeting is just over the horizon, it is important to brush up on key concepts to help us prepare for market uncertainty. So, here are some ways to make money trading during turbulent market conditions.

Trade Risk-Off Pairs/Buy USD

What Does Risk-Off Mean?

Due to ever-changing market conditions, examples of risk-off pairs tend to change as well. Risk-off currencies basically are the ones that perform better in times of uncertainty, economic struggles, hawkish monetary policy or high inflation.

Here is a list of risk-off currencies that tend to do better in recessionary times:

Historically, these currencies have been considered 'safe haven' investments when the economy is suffering. USD has always been a safe haven because of the Federal Reserve and their decisions impact the global financial market. Ever hear of people making Swiss bank accounts to shield their money (or keep it hush-hush)? The Swiss Franc is considered risk-off because of it expendability with debt. As a constantly profitable and small economy in the financial sector, the Franc never really gets into deep waters like Germany, United States, Canada, Euro-Area, etc. which are much larger economies. Lastly, when US stock markets fall, the yen tends to appreciate, making JPY a historically profitable play in poor economic conditions.

What Pairs Will Move Up/Down During A Recession?

Here is a list of all the risk-off major pairs that would perform well/poor if a global recession were to happen now:

Bullish

  • USD/CHF
  • USD/JPY
  • XAU/USD

Bearish

  • GBP/USD
  • EUR/USD
  • AUD/USD
  • NZD/USD

You might have noticed that USD/CAD is not on the list. That is because the Canadian economy has been very strong as of recent. Their jobs data is better than the US and most other countries while the oil-dependent economy has benefitted from sanctions on Russia and supply-chain shortages. Overall, if the energy crisis on oil continues, the loonie will persist, but if oil prices fall, USD will overtake CAD.

Because of the Fed's impact on the world financial system, USD will continue to be strong especially if it's central bank continues to raise rates like it has been doing so far this year. Gold is also on the bullish list because of its extraordinary circumstance. Due to reasons mentioned in this article about gold, we think a recession would be a good opportunity to start building positions on gold for the long term.

Making Money Trading In A Recession

The process of trading in a recession can either be through the use of short term or long term plays. GBP/USD and EUR/USD tend to follow the US stock market (SPX500 or NAS100). If you have ever traded these indices, you would know how volatile they can be on a regular basis. This volatile behavior is mildly reflected on the pound and euro when it is up against the USD, but the correlation is generally the same as the SPX500. If one was to trade GBP/USD or EUR/USD, quick short plays might be the best option. Ranging plays would also work, but there might be heavy ups and downs along the way.

All forex pairs enter into long-term swings either to the upside or downside. But, some pairs like to take exuberant amounts of time in a single direction before changing course. These pairs are AUD/USD, NZD/USD, USD/CHF & USD/JPY.

Similar to the pairs just mentioned above, gold is another example of an asset that takes a long time to move, allowing for investors to build large positions over time. Commodities like gold also tend to perform their best during economic declines.

For the past several years, gold has risen over time to the highs of $2000 while holding an average price of $1883 in 2022. In the last 3 months, price has been struggling as investor interest has huddled around the USD and risk-off currencies. However, there is a chance that this precious metal will be able to surge on weak dollar sentiment.

Gold's Outlook

Record Inflation

Pressures continue to mount on the dollar as inflation hits 40-year highs while the hawkish Fed stays the course of aggressive monetary policy. Since March, the Fed has been conducting monetary tightening to counteract the expanding consumer price index. But inflation is still out of control.

The central bank took even took measures beyond what economists originally expected. Rates flew past the 2% target while 25 basis point hikes in interest abruptly turned to 50 to keep up with the rising pace. The combative Fed is doing what they can to curb a devaluing dollar, but nothing seems to quell this upsurge. CPI keeps coming in hotter and hotter above forecasts.

gold
US CPI numbers

Consumers are paying over $5/gallon on average at the pump as spending is forced to increase overall. This has been hitting the wallets of every day Americans and discouraging the amount of spending that was more prevalent in the years prior.

Deteriorating Economy

The number of layoffs in May increased exponentially compared to other months as the job market slows again. 17,000 new employees were laid off in May while 5,500 were already let go in the month of June.

gold
https://layoffs.fyi/

From the image above, we can see a startling pattern forming within the last four to five months. The number of layoffs is increasing with each month suggesting a huge slowdown in the economy and a looming possibility of a recession.

The combination of surging inflation, higher interest rates and a slowing economy, the US as well as other countries have entered a period of stagflation which is neither good for the economy nor the dollar. This could be an indication to start showing some interest in gold.

Price could definitely surge in the coming months, and if it does, we might even see the metal climb well above the $2000s and may even touch $3000. This could also take lots of time for things to come into fruition, but we have an idea of how we want to approach the potential gold spike.

Position-Building Setups On Gold

gold

Because of our long term outlook, we want to approach gold from a long term perspective. There are three levels/zones where we would consider picking up entry points to build our positions. The first PT is in the $1780s, the second is in the $1670s, and the third PT is much lower in the mid $1400s. We believe these levels to be key in gold's direction going forward and will be pivotal points that this metal could test should price dip lower.

This morning saw demand for USD rapidly pick up steam as US inflation data came in hotter than expected. Month-over-month CPI had been forecast to rise by 0.7% in May; at 8:30 am Eastern Time, the Bureau of Labor Statistics revealed that it had increased by 1%, or 8.6% year-over-year, a forty-year high. Likewise, Core CPI (which excludes food and energy prices) was forecast to rise by 0.5% month-over-month, instead hitting 0.6%. On this news, the DXY is up 0.8% and has risen over the 104 level intraday, as EURUSD is down 1% and the S&P 500 is down nearly 3%. With this context in mind, let’s discuss 3 ways to capitalize on inflation now.

Trade Major Pairs

3 Ways to Capitalize on Inflation Now

This CPI news is a huge fundamental catalyst for USD pairs since it verifies that the US economy is indeed still overheating, validating further interest rate hikes by the Federal Reserve. This is very bullish for USD, which makes buying the USD against other currencies even more appealing. If traders are searching for optimal USD pairs to take positions in, a good place to start is by locating pairs where analysis leans in USD’s favor to the greatest degree possible.

Some such options include a) shorting GBPUSD and EURUSD, which receive -7 (‘strong sell’) and -5 (‘sell’) signals, respectively, from the EdgeFinder, and b) going long on USDJPY, which receives a 4 (‘buy’) EdgeFinder signal. Because USD experienced so much buying pressure this morning, conservative traders may want to find an opportune point of entry by conducting technical analysis, e.g., waiting for a pullback and retest of key support/resistance.

Buy XAUUSD

3 Ways to Capitalize on Inflation Now

Though admittedly a controversial opinion, I am waiting for an optimal point of entry to purchase gold against USD. XAUUSD experienced quite the selloff this morning before a startling recovery, jumping from a low of 1825 to hovering around 1855 at the time of writing this. This jump was seemingly prompted by finding support around the 1830 level, a clear zone of support on a 1-hour timeframe.

I interpret fundamentals being bullish for XAUUSD due to demand for the precious metal in several different industries and its historical status as a safe haven investment in times of economic crisis. There have been periods where gold’s rise in value does not correlate with USD depreciating in value, which is helpful to consider in cases like these. According to the latest COT data, institutional traders are similarly long on both USD (76%) and gold (73.56%). I am planning to purchase XAUUSD if price action retests the trendline depicted on the 1-day timeframe above, though this opportunity may not come if demand continues to grow quickly.

Invest in the Stock Market

3 Ways to Capitalize on Inflation Now

Though it may seem strange in the face of persisting hyperinflation and potential for recession, economic downturns and stock selloffs do present myriad buying opportunities for long-term investors. If you are not planning on retiring for decades, you can utilize dips in the stock market and indices to build wealth over time, assuming you are willing to sacrifice immediate results. For example, when the Dow plummets over 600 points like it has today, investors can seize these events as opportunities for cheap purchases that will yield returns years down the road.

If your investment portfolio keeps crashing in the meantime, this does not have to be discouraging since they are merely unrealized losses; they will likely grow in value through the decades if you are invested in index ETFs and other trustworthy funds. Any further selloffs present even more opportunities for regular, small purchases. (However, investing in individual stocks is a completely different story, and I personally believe that even the most skilled retail investors are not sufficiently equipped to handle the inherent risks involved.)

Key Takeaways

The dollar started showing weakness on some pairs today as investors anticipate a higher rise in inflation tomorrow. USD is looking especially weak against the pound, yen and swiss as dollar sinks against the swiss by over half a percent. Because of this mixed sentiment, here is a forecast of what we think the dollar pairs might do going into tomorrow's inflation report as well as next week relative to the currencies it trades against.

EUR/USD

ECB was expected to keep interest rates at 0% which came in as expected this morning, so no surprise here. Interest has been negative for a long time, so zero is a step in the right direction, but it is also not very promising when going against the other majors like the dollar, kiwi, loonie or even pound. Economists do expect to raise rates in July though, so traders might be pricing in the future hikes which are targeted to hit 1.3% by the end of 2022.

Our bias: There is a pretty strong correlation to the S&P, just like GU, so the thought of risk off sentiment and higher euro rates could be bullish for the pair. It would also depend on how CPI goes tomorrow on the USD. Higher CPI would mean Fed will try to stay the course, strengthening the dollar, but falling inflation could loosen up the Fed and weaken the dollar.

GBP/USD

With surging inflation in the UK, the pressure is mounting on the pound. The BOE is shooting for around the same interest rate as the ECB, at 1.38% by December. Boris Johnson survived the governor confidence vote, but the pound is now looking really weak from a fundamental standpoint. The Edgefinder thinks the pound is a strong sell which is concerning, especially as economists think inflation will hit 10% this year before curbing.

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Our bias: The question is whether the BOE is too aggressive on the pound during a recovering economy, or if they’re not aggressive enough to curb inflation. Outlook is weak on this currency, so the pound might suffer in the meantime.

USD/CAD

Canada’s version of Non-Farm Payroll comes out this Friday with the expectation of adding 28K jobs, which is 13K jobs more than the month before (economic expansion). Their bank is also aggressively hiking rates as well. Last week’s hike was 50 basis points while oil rises on supply chain issues with sanctions regarding Russia and Ukraine. So it’s helping out the commodity driven economy.

Our bias: Canada is like a powerhouse right now, I would not go against this pair. You’d be a loonie to short the loonie.

USD/JPY

The yen sank to 20 year lows while BOJ governor, Haruhiko Kuroda says he's not going to loosen his hawkish stance towards interest rates. They also left the key short term interest rate the same (-0.10%) which doesn’t seem very productive especially if the bank is trying to be hawkish.

Our bias: The yen is likely not going to be bullish for an extended amount of time at any point soon.

XAU/USD

The long standing war in Ukraine continues to drive up commodity prices due to supply chain issues and geopolitical tension. Gold’s performance also depends on whether the US economy slows down, so unemployment claims are something to look at as well as NFP, but NFP beat expectations last week. Bond yields and gold’s price go hand in hand and the US 10-year note touched above 3% today, suggesting weakness in the metal.

Our bias: We are mostly neutral on the metal and I think there are better things to trade right now.

SPX500

Bond yields also heavily affect the stock market as well as jobs data. Depending on CPI this Friday, the S&P will either look bullish or bearish for the rest of the week and going into next week. If CPI is higher, that would not be good for stocks in my opinion bc it will encourage the Fed to remain strong on the USD, especially with the beat in NFP last week. But if CPI is lower, maybe the Fed will start to tapering with the idea of relaxing their heavy hawkish stance.

Our bias: The SPX500 never really came down to hit a bottom before bouncing, and it never really hit any resistance before it retraced. So, I don’t really know where it’s going to end up. But I do see lots of bullish setups in the short term. Just looking for quick bounces and dipping out before the market gives it all back.

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