Yellen Sparks Gold Rally As Rates Stay On Hold

Overnight the price of Gold and Silver rallied higher as the Federal Open Market Committee (FOMC), decided to keep rates on hold again.

Janet Yellen chairperson of the FOMC said "economic activity picked up from the modest pace seen in the first half of this year." This is despite the FOMC lowering the long run growth rate for the US economy to below 2%. As a consequence the FOMC decided to wait ‘for the time being for more evidence'.

They tried to balance their statements by also saying that the 'case for an increase in Federal funds rate has strengthened'

From the reaction of Gold overnight, jumping $20 to $1,334 after falling all of last week, shows the market has no confidence at all in Yellen's statement, that the case for raising rates has strengthened.

Taking a closer look at the Gold chart below, you will notice that since making new 2016 highs back in early July of $1,374. Gold has struggled to make new highs and instead has been forming lower highs (see chart), which is a bearish signal. On the bullish side Gold has continued to hold the support level of $1,310, and is still within its existing uptrend.

The key for Gold moving forward, is whether it is able to break out and close above the wedge pattern. If it breaks above this wedge formation this would be a very bullish signal for Gold.

Failure to close above the wedge pattern would lead to testing the $1,310 support level and its uptrend.

Silver which has similar characteristics to Gold also rallied higher by 56c to $19.78 after the FOMC decision to remain on hold.

Silver has been displaying a similar trend to Gold with lower highs as well. However as Silver is in an existing uptrend the most likely breakout direction from this wedge pattern would be to the upside.

If it breaks to the upside its first level of resistance is $20.60. Otherwise a close below its wedge pattern its support level is around the $17.80 (see chart below).

The market is currently pricing a 65.9% chance that the FOMC will raise rates at the December meeting, up from 58.8% before the FOMC announcement (see picture below).

If the FOMC had the courage to raise rates in December and this is a big if. The current uptrend of Gold and Silver would be in jeopardy, especially if the market believed more hikes would be followed up by the FOMC.

Right now though the only thing that matters is what the market thinks, and market price for Gold and Silver is indicating that a hike in rates is not likely.

Rate Hike Odds - Before & After 9/21 - FOMC Meeting. Click chart for source.

Disclaimer: This post was for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.

Source:
zerohedge.com