Gold’s Rally: the Longest in 7-months on Fed

Considering the bearishness in precious metals, they were not looking so precious. Something has changed.

Bullion.Directory precious metals analysis 10 October, 2014
By Christopher Lemieux
Senior FX and Commodities Analyst at FX Analytics

The Federal Reserve will remain dovish on worries that the global economy is slowing, which will undoubtedly effect the weak US economy. In response, the world’s reserve currency fell off the highs, and equity volatility is picking up from historical lows – the DOW has had 12 triple-digit days in the last 18. 

We can thank Fed Chair Janet Yellen and the pick up in volatility for gold’s best rally in seven months, even if it is a meager four sessions.

Gold’s decent was swift, and last week’s break to $1,182 was worrying for many. However, the triple bottom (first seen here), helped support prices. “Everyone thought they were extremely hawkish and that they were going to raise rates soon, and now it appears they’re not going to do that because everyone is afraid of a global slowdown,” said Phil Steible, a senior market strategist for RJO Futures.

Unfortunately, if “everyone” read the economic data and what felt the overall tone at the Fed was, it could be seen from miles away. Since the Fed and “everyone” is afraid of the bubble popping during economic slowdown, continued support is needed more than before. This will place a floor under gold.

Gold’s rally looks to be gaining momentum, and the near-term target of $1,236 (refer to link) per troy ounce is near. The 50-day exponential moving average will offer some resistance, while further declines in the US dollar will help push price action to $1,250.

The daily chart shows the momentum indicator (ADX) ticking down, signaling weakness in the current bearish sentiment. The + DMI/- DMI (directional movement indicator) could bullishly converge, which will add in price action positively.

Price action will find support at $1,214 and $1,204 per ounce.

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