Did Yellen’s crossing out the word “patient” on the latest FOMC Statement really cause the price of gold and oil to spike?
Bullion.Directory precious metals analysis 18 March, 2015
By Terry Kinder
Investor, Technical Analyst
I love a good story as much as the next person, but the narrative that just because Janet Yellen broke out her Sharpie and crossed out the word “patient” from the latest FOMC Statement caused the prices of oil and gold to spike is ridiculous. Why? Well because both a higher gold price and higher oil price were mentioned here and here.
And, as mentioned earlier today, I’m not much of a Fed voyeur, so what they may or may not do isn’t something ever considered in my analysis.
The Oil Price Bounce
From an article written on 16 March:
When will the oil price reverse? If the calculations have been made correctly (we aren’t going to get into how they were made just yet, perhaps another day), then a low in the oil price should be made around Thursday the 19th of March. Yes, it’s that close, despite much speculation to the contrary. One thing we can’t know yet is whether the low represents “the low” or an interim low. We won’t know for certain until we can look backwards at some point in the future.
Was the March 19th date picked out of a hat? No. I’m not yet going to tell you how the date was calculated, but here is a clue – it’s calculated, in part, using the dates of the last two significant oil price highs – 11 July 2008 and 2 May 2011. The calculation, of course, can’t tell us for certain whether or not, on or near 19 March, is an interim low or the pivot low for this oil price drop. That’s something we’ll have to wait and see.
Gold Price Bounce
As for the gold price bounce here’s what I wrote on 16 March:
Short-term we could witness a bounce in the gold price.
However, it remains to be seen whether this temporary bounce will translate into anything more durable. While the recovery of the gold price above $1,157.00 offers some reason for optimism, it’s still a good ways from the $1,208.00 level that marked a more significant decline in the gold price and now transformed into price resistance.
Sound familiar? We’re certainly getting a bounce after the sentiment on the gold price had soured significantly as everyone appeared to rush to one side of the proverbial boat, marking the perfect time to scoot on over to the opposite side.
Having said that, gold would need to take and hold $1,174.00 on a weekly basis to demonstrate this move is anything more than an oversold bounce. In reality, gold needs to take $1,208.00 and move beyond it if there is to be any hope of a durable rally in the gold price. Until that happens, we’re just trading in a downward arc.
Gold Reversal 9 May?
By my calculations the gold price will reverse around 9 May. I’m assuming that the gold price will generally move down from now until then. However, should we move up from now until then we would need to consider just the opposite, that the gold price would go down.
Given the general trend in the gold price, it’s more probable that any reversal of the gold price in May would mean the price would move up. This is based on the same method as used to forecast the oil price reversal.
Conclusion
While it’s far too early, especially in the case of oil, to know if there will be a durable change in price direction, it’s possible we may be nearing a turning point, of unknown duration, for crude. I suspect gold could run into some resistance around $1,174.00.
While the financial talking heads would have you believe the gold and oil price bounces are all the result of Janet Yellen’s Sharpie, there’s a bit more to price movements than that.
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