Blind Men and an Elephant

The ancient Indian parable about the blind men and an elephant succinctly defines how one’s perspective will color the conceptualization of an event. As such, analysts can view the same event in remarkably different ways.

Gold futures based on the most active February 2018 contract are currently up $9.40 and fixed at $1258 per ounce. However, the net price change on the day is a little bit deceiving. It is deceiving in that, although gold futures have traded to a higher high and a higher low than yesterday, current pricing of $1258 is just under yesterday’s high. More importantly, it is very close to yesterday’s close which occurred at approximately 4:00 PM Eastern standard time and was within one dollar of the current price.

That being said, it does appear that Tuesday’s low of $1238.70 could hold, forming a potential base and signaling the conclusion of the most recent correction. That price point is precisely a 78% retracement of the $163 rally which resulted in gold prices achieving their highest value this year at $1363 per ounce.

While many analysts believe we are seeing solid follow-through buying adding to the impressive gains achieved yesterday, we are still trading at the same level as yesterday’s highs.

On a technical basis, I believe there is resistance at $1265.40, the 61.8% retracement level, with major resistance at $1268, which is where the 200-day moving average is currently fixed. It is these price points which need to be taken out on a closing basis before one can confirm that a bottom is in place and that recent price activity is signaling that a key reversal occurred this week.

On a fundamental basis, yesterday’s FOMC statement fell firmly within expectations. Not only was the highly anticipated rate hike confirmed, the 2018 monetary policy model, or dot plot, contained precisely the anticipated three interest rate hikes next year. Simply put, there were no surprises which led to yesterday’s $16 gain in gold pricing. While many analysts have referred to yesterday’s statement as being more accommodative than initially anticipated, market participants got the estimates right.

As reported in MarketWatch, “The fact that the Fed’s rate-hike plans for next year appeared to remain intact provided support to gold, as higher rates make nonyielding bullion less attractive than yield-bearing assets.”

If anything was made crystal clear in yesterday’s statement, it is that the Federal Reserve is an institution that will change command the top. However, the underlying models set forth by the Federal Reserve this year will remain intact. Simply put, the Federal Reserve will continue to stay the course.

Whether or not yesterday’s $16 gain was a true and accurate reflection of the Federal Reserve’s current monetary policy will become clear in the days ahead. However, at least for now, many believe it is signaling the beginning of a defined rally and recovery of gold pricing through the end of the year and start of 2018.

Wishing you as always, good trading,