A Technical Update on Gold and Preparing for the Fed Meeting

What is leading to the doubt circling the traders about this week’s upcoming meeting?

The clearest answer to this is the current weakness in American stocks combined with Powell’s statement in November that we were approaching a “neutral rate” at current levels.

The Campaign by the Fed to Normalize in Trouble

Even taking the balance sheet loss of close to $400 billion that has occurred since the policy to normalize kicked off in the summer of last year into consideration, the Fed will still need at least six more years to bring its assets back to the quantity it could have reached if none of the large bailouts had been given after 2008:

The big news for this week from the macroeconomic world is the Federal Reserve’s meeting scheduled for this Wednesday. These meetings occur once every six weeks, and this upcoming meeting will include an official announcement on interest rate and monetary policy is set for 2:00 PM EST on Wednesday.

This meeting holds an extra degree of uncertainty due to the recent low points reached by both the US stocks and the bonds, making it possibly the most uncertain meeting since rates began to rise back in December of 2015. Along with this element, it could also hold the rank of being the most contentious meeting since February of this year, when Janet Yellen ceded the chair position to Jerome Powell. If you take a look at the graph below, you will see that the uncertainty is ranked at the low level of 76.6%. This makes it seem very likely we will see a rate hike on Wednesday, as these are the lowest odds leading into a highly expected rate hike since today’s cycle started in 2015.

It’s already clear that the fairly small reduction in the balance sheet has led to the massive cycles seen in the last few months in the bonds and stocks, as mentioned in our recent analyses.

Do we truly believe that the Fed can bring itself back to the policy before 2008 without crashing the markets entirely?

A Technical Update on Gold

It’s important to separate individual prices of metals and take a look at them on their own. Even though all of the instability in the international markets lead us to believe that the near-term precious metals market will gain some support. This makes sure that we never over-analyze signals that show up in the mass of international current events.

Gold closed the week lower by $11, or a percentage of 0.9%, at $1241 on Friday afternoon for the New York COMEX.

Since gold’s bottom of $1160 in August, the movements of the price have been characterized as an ordered, growing channel, as seen in the dashed teal color below. See how the value has gone back and forth between the higher and lower boundary of the channel, continuing through to the most recent higher point of $1256 reached last week, where gold met some resistance.

This route of recovery must be followed until it shows us otherwise. The higher point of resistance will be $1263 for the upcoming week. There is some minor support in the $1237 to $1242 range, which are October’s peaks that have now been passed over. More relevant support can be seen at the lower edge of the recovery route (seen in teal) of $1209 and higher. But at this point we must take a look at the intermediate timeline. Gold had broken below the 2015 to 2018 growing trend in July, seen in the royal blue line. Generally, when there is a re-testing of a broken trend, sellers tend to show up again, as seen the first time the trend was broken. These sellers usually show up as buyers who are trying to sell close to the point where they are able to break even now that the price has grown closer to its starting point.

The main idea here is that gold is likely to hit some resistance at the royal blue line showing the previously broken trend, which can be seen now at $1285 and up.

When a rising channel that is offering support reaches a previously broken trend that is expected to give resistance, one of those naturally has to break. Here, we should expect the bias at the longer-term trend will keep prices low, the longer the trend the more important it is.

Gold’s Technical Chart, Summed Up

When gold gets closer to the range of its broken trend of $1285, we look for an intermediate-term to form near the top. Following this, the decline is likely to take values lower than August’s lowpoint of $1160, and from there we expect to see a more meaningful low to form next year.

These are the points being told to us by the charts. What would lead to gold creating a top? A pause on the Fed interest rate and a lack of volatility in the stock market could possibly do so, but it’s impossible to say for sure. All we can do is continue to assess the trends we see on the charts.

CHRISTOPHER AARON
BULLION EXCHANGES MARKET ANALYST

Christopher Aaron has been trading in the commodity and financial markets since the early 2000’s. He began his career as an intelligence analyst for the Central Intelligence Agency. 

Christopher Aaron specializes in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq. His strategy has helped his clients to identify both long-term market cycles and short-term opportunities for profit.

This article is a third party analysis and does not necessarily match the views of Bullion Exchanges. Do not consider Bullion Exchanges as financial advice in any way.





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