Posted on September 20, 2013
Well what a week it has been for the yellow metal. Gold has seen some very interesting price action in the wake of the Federal Reserve announcing that they would keep their bond buying intact for the time being. Prior to the Fed decision, gold prices had been languishing in tapering misery for the last seven sessions. Many were in fact calling the latest rally in gold prices over and dead as the Fed was going to begin removing its stimulus.
How quickly things can change.. Investors were somewhat shocked when the Fed announced it would keep existing policies in place-at least for now. The majority of economists had assumed we would see the Fed taper by $10-$20 billion at this meeting. It appeared that stocks and risk assets would take the move in stride, but it was not to be. The lack of tapering caused a huge rally not only in gold and precious metals but also in stocks, crude oil, and risk assets.
The question now becomes when will the Fed taper? By year’s end? Early next year? No one knows for sure. It does seem however, that risk assets are likely to continue higher until proven otherwise. Many believe this policy is indicative of the fact that Janet Yellen will likely become the next Fed chief. Ms.Yellen is a strong ally of Ben Bernanke and will likely continue in his footsteps of loose money policies for the foreseeable future. This could be a big boost to gold and precious metals should it prove to be the case.
There is a lot of chatter out there too about how the Fed has now lost credibility with the markets. This may or may not be the case, but one can certainly argue that the situation could spin out of control. The Fed is afraid to begin tapering due to the econ0my remaining fragile. What will happen when the Fed has to taper? We could see a huge, rapid rise in interest rates that could completely derail the economic progress that has been made. For all practical purposes, it seems that the Fed has painted itself into a corner-and investors are watching. Once again, this could prove to benefit precious metals as uncertainty leaches into markets.
From a technical standpoint, the gold bulls still have some work to do. As of this post, gold prices are back below their 20 and 50 day EMA’s-although not by much. Prices are currently sitting on the 9 day EMA at $1338ish level. Thus far, this could simply be a consolidation day for the metal after the big run up post-Fed. We see some support in the $1335 area. The bulls may be disappointed however, if prices slip below current levels. Additional downside would put the bears firmly in control once again.