Gold futures firmed late in the session on Wednesday after the Federal Reserve left their benchmark interest rate unchanged near zero percent. The move was widely expected. What spooked investors into buying was the Fed’s tepid outlook on the coronavirus-plagued economy.
Along with keeping rates low, the Federal Open Market Committee, which sets monetary policy, expressed its commitment to maintain its bond purchases and the array of lending and liquidity programs also associated with the virus response.
December Comex gold settled on Wednesday at $1986.50, up $22.60 or +1.15%.
A good rule of thumb for gold bulls: When the Fed and more liquidity are mentioned at the same time, it’s usually interpreted as bullish. If there is no continuation of the rally, it would signal that the market is going into a holding pattern as traders await more news on the virus and the fiscal policy deal. If this becomes the case than investors may start looking for value plays rather than chasing prices higher.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. A trade through $2000.00 will signal a resumption of the uptrend. The main trend changes to down on a trade through the last main bottom at $1819.30. This is highly unlikely over the near-term, but there is always the danger of a closing price reversal top.
This chart pattern won’t change the trend but it could trigger the start of a 2 to 3 day correction. If it does occur then it will probably be designed to alleviate some of the upside pressure and maybe shake out a few of the weaker longs.
The minor range is $2000.00 to $1927.50. Its 50% level at $1963.80 is support. It’s controlling the direction of the market at this time.
The next minor range is $1819.30 to $2000.00. Its 50% level is $1909.70. This is followed by a support cluster at $1894.20 to $1886.00.
There is no identifiable resistance at this time other than the contract high at $2000.00, which is why we’re going to rely on a chart pattern to tell us when the market is topping.
Trader reaction to $1963.80 should set the tone on Thursday. Keep in mind that gold broke $72.50 from its top on Tuesday. That’s a relatively large swing so be prepared for the same time of price action as the market moves higher, $100 to $200 intraday price swings could become the norm until the market settles into a range.
Short-term traders should have an exit in mind before the market picks one for you.