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Gold Continues Fed Enhanced Rally

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For the fourth consecutive day, gold prices have closed higher, now trading to a 2 ½ week high. Gold futures today rose roughly 3 dollars to close at $1233 per ounce. This a continuation of the dramatic rise in gold prices witnessed on Wednesday of last week, immediately following the conclusion of this month’s FOMC meeting. For the most part, last week’s dramatic rise in gold prices contained a significant percentage of dollar weakness.

US dollar weakness surface last week as market participants viewed the current stance of the Federal Reserve as much more dovish than anticipated. Inasmuch as an interest rate hike was factored into current pricing, traders and investors wondered what the tone and outlook would be for the Federal Reserve moving forward. Statements made by Janet Yellen after the conference underlined the fact that the Federal Reserve’s monetary policy will remain, “accommodative”. This statement put market participants at ease about a potentially aggressive posture by the Federal Reserve.

It’s Not About the US Dollar Today

Although last week’s dynamic gain had a significant percentage due to a weak US dollar, the same cannot be said today. Currently, spot gold prices are trading almost 5 dollars higher on the day at $1233.40. This gain is in light of a US dollar that is nominally higher on the day. $5.10 is directly attributable to traders buying or bidding up market price and  $-.50 is attributed to a strengthening US dollar. This is according to the KGX (Kitco Gold Index).

A Gold and Crude Oil Connection?

According to a suggestion by Bloomberg Intelligence’s Michael McGlone, there is an interesting correlation between crude oil and gold prices. In an interview with Bloomberg News, McGlone suggested that the recent downside pressure in crude oil was a positive boost in prices for gold. He theorized that lower oil pricing would decrease the basic cost of living, and therefore inflation, and the net result would be that less pressure was placed upon on the Federal Reserve to raise rates. This in interesting take on the relationship between gold and crude oil prices.

Technical Support and Resistance Levels

Based upon our current Fibonacci based studies, we show that there is major support for gold prices at $1200, with the next level of support at $1221 per ounce. We currently show minor resistance at $1239, with major resistance at $1265 and $1276.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer