Posted on September 27, 2013
The gold market has been relatively quiet this past week. This is not at all surprising following last week’s surprise when the Fed did not announce plans to begin tapering at its latest meeting. For now, the gold market will likely remain vulnerable to speculation, fed commentary, and other factors such as the debt ceiling.
Many feel the fact that the Fed did not announce a taper last week is indicative of the fact that Janet Yellen will be the next head of the central bank. Ms. Yellen is a strong supporter of current Fed chief Ben Bernanke, and should she be appointed as the next Fed chair, it is widely thought that she will continue in Bernanke’s footsteps. This means loose monetary policy and keeping rates low for the foreseeable future.
Should this be the case, it could be bullish for precious metals. The metals do seem to be stuck in no man’s land currently, as investors await more clarity on the Fed’s plans. The fact is, the Fed expressed concerns about the strength of the economy at their last meeting. This could mean that rates will stay low for longer than expected. The fact that the Fed still does not feel that the economy can stand on its own two feet is a bit unnerving.
Of course, we shall see what happens but the price action in gold this morning is a great example. Gold prices shot up early today on comments made by Charles Evans, President of the Chicago Federal Reserve. Evans stated something along the lines of the Fed may refrain from tapering its stimulus until 2014 as the economy still needs to improve. This sent gold prices sharply higher, and weighed on the dollar. It just goes to show how sensitive the precious metals markets are to Fed policies.
This past week saw a very tight range in gold prices. Gold has traded in basically a$40 range all week. Bullishly, the market did not punch out a new recent low after the sell off on Friday. Rather, the market has made higher lows each day and is currently testing its 20 and 50 day EMA’s in the $1342-$1345 area. The price action looks bullish as if prices want to move higher. This week’s low in the $1305 area may provide support. In addition, last week’s low of $1289 and change provides some support. On the upside, the market needs to clear the current level and moving averages to set up a test of last week’s highs around $1375.