Gold Looks Primed To Extend Rally On Fed
Gold Looks Primed To Extend Rally On Fed by Brendan Coffey for Forbes
The gold market looks set up for a rally that could push prices to challenge crucial long-term resistance. Gold’s been on a strong rally since last fall, running up about 20% to a recent $1,426 an ounce. Based on the long-term charts, if the Federal Reserve cooperates and cut interest rates while signaling a willingness for more, gold could push to a high that would bump it up against resistance near $1,550. That’s the base of the period when gold chugged to an all-time dollar high of almost $1,900 in 2011.
Right now, gold looks like it has found a new support base at $1,400-$1,425 range. Chart wise, this is from the completion of a classic flag formation, on the monthly chart, starting last August and completing this month, as this chart of monthly gold prices shows. (And yes, I know other analysts say you can’t have flags in long-term formations. I disagree.)
Gold is a complex market with a number of forces at play, so nothing is guaranteed. But essentially gold goes up when the U.S. dollar gets weaker (and conversely, goes down when the dollar is strong, such as the historic gold market bottom of 1999.) The read here is that the Fed is signaling it’s done trying to put the capital markets on a diet. Not only with the seemingly guaranteed lowering of interest rates tomorrow which will continue to support the stock market, but with the likelihood the Fed will be even more reluctant to trim its $3.8 trillion balance sheet built up by the (very effective) policy to pull the economy out of the financial crisis last decade. That’s supportive for gold in part because a huge existing balance sheet could mean there’s less for the Fed to turn to if the economy worsens dramatically.