This was certainly an interesting week for the gold market. As of this post, the price of gold is about to notch its first winning week out of the last four weeks. Gold prices have been trending higher since July 5th, and the market can thank Ben Bernanke for a large portion-if not all of the gains this week.
This past week the markets anxiously awaited Wednesday’s release of the latest FOMC minutes and commentary by Ben Bernanke. Prior to the minutes, the markets seemed to be operating under the assumption that with regards to the fed’s stimulus program the end was coming sooner rather than later. How quickly things can change. Bernanke appeared to take a much more dovish tone when speaking about fed policy and the economy.
Judging by some of the reactions that we saw, this threw the markets for a loop. Not only did the fed minutes get markets moving, but Bernanke speaking after the markets had closed caused large moves as well. Stocks rallied sharply in keeping with their current uptrend. The Euro currency rallied over 300 points as the U.S. dollar index sunk like a rock in water.
Essentially, the dovish remarks this week from the fed and Bernanke, along with more dovish talk last week from the ECB and the BOE, has caused the “Risk on” mentality to remain in full force. Investors have continued to buy commodities and risk assets as central banks have indicated they remain committed to an easy money policy-at least for now. There is still ongoing debate however, as to whether the details of the fed minutes tell a different story. many still believe we could see tapering as soon as September.
For now, Bernanke and the central banks have given gold investors perhaps a good reason to buy. Time will tell how long current monetary policies will stay in place, but for now Bernanke has given investors a green light to keep buying risk. If the dollar index starts to weaken again, it could work to gold’s benefit. If nothing else, the last week’s events have given shorts in the gold market something to think about. A lot of the short players have likely been shook out of the market already. Physical demand in gold remains relatively steady, and for now we will have to see how things play out over the next few weeks in terms of data and outside markets.
From a technical standpoint, gold prices are flirting with their 20 day EMA today at the $1280 level. Should gold produce a solid close above this level either today or early next week, we could see fresh buyers entering the market squeezing more shorts out in the process. Initial upside targets of $1295.90 and the $1350 area could be seen quickly in such a scenario.
