Gold Set to Move on Fed Announcement

The Federal Reserve has announced that it will keep interest rates low through 2014, which means gold investors may be getting back into the game, according to some …

The Federal Reserve has announced that it will keep interest rates low through 2014, which means gold investors may be getting back into the game, according to some analysts. Gold recently broke away from a downward trend, and that combined with the Fed rate plan and growing lack of faith in fiat currency may put gold on an upward track. Investors recommend making buy or sell decisions based on the totality of performance over a given period rather than simply noting entry and exit prices. For more on this continue reading the following article from TheStreet.

With the Central Bank of the United States, better known as the Federal Reserve, making its announcement to keep interest rates low through 2014, gold is going to get some attention. Many people believe gold is a risky investment if interest rates start to rise, since the metal pays no dividends. In that school of thought, Wednesday’s actions by the Fed should be seen as bullish for fundamental reasons.

The way I look at it, anything that pays a dividend or makes an interest payment has risk. Some of those risks are reinvestment risk, default risk and purchasing power risk. In my opinion, the fundamental reasons for owning gold these days should be for preserving wealth. It should be looked at as insurance against a financial meltdown caused by excessive credit creation and not enough real assets to back up all of the worlds’ current paper debts.

On top of that there’s a terrible history for the value of fiat currencies over time. Gold is savings. Gold is money. These are arguments for another day. In the meantime, the current gold futures contract has broken out of a multipoint downward sloping trendline. Any trendline that is greater than three points of contact is significant. Gold also closed above $1,700.

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Large round numbers have historically been significant areas of support and resistance. Why is that? In the example of resistance, if you are looking for a reason to sell something that has gone down in value; such as having bought gold above $1,700 a month or two ago, and you saw it drop down into the $1,500’s, the feeling can be “if it ever gets back to $1,700 I am selling out.”

It takes strong demand to get through that supply when the time comes. I imagine gold will have a tough time getting through the next couple of round numbers. You can see on the chart below, how $1,900 was a strong level of resistance in August and September of 2011: $1900.4 was the highest close on the COMEX.

The COMEX is located in New York and that is where the most action in gold futures takes place during the day. The hours of trading in the open outcry pits for the COMEX are 8:20 a.m. to 1:30 p.m. Eastern Standard Time. The COMEX is a division of the Chicago Mercantile Exchange (CME Group).

Notice after a strong selloff for gold in September 2011, the next major high was around $1,800. For any trader who uses charts to make decisions for entry, one of the worst things you can do is to base the decisions to exit solely on where you previously entered. For all technical analysts, the decisions for entry and exit should be based on the structure of the chart and not where a loss is “comfortable” or “breakeven.”

This major trendline being broken to the upside and gold closing above $1,700 is a major bullish development. I would think that the bears would do their best now in the coming days to throw the kitchen sink at gold and knock it back down below $1,700 before it starts to get some momentum to the upside.

For those who want to trade an exchange traded fund that tracks the price of gold, it is symbol GLD.

This article was republished with permission from TheStreet.


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