Cross-currents continue to have positive and negative influences on gold
Today is the perfect example of how enhanced inflationary pressures and the reaction to higher inflationby the Federal Reserve create cross-currents that take gold higher as well aspressure pricing lower. Gold futures basis most active December contract openedtoday at $1783.70. Continued concern about mounting inflationary pressures tookgold prices substantially higher with the precious yellow metal breakingthrough $1800 in trading to a high today of $1815.50 before comments made byFederal Reserve Chairman Jerome Powell.
Chairman Powell's comments todayhad a profound impact on gold as displayed on a 15-minute candlestick chart(chart 1). In the short time of 45 minutes, gold peaked at its high above $1815,and traded to a low of $1783.40, today's intraday low. During the remainder ofthe trading session, gold would briefly test $1800 before settling at $1793.10,which is a net gain of $11.20, or +0.63% on the day.
Today's statement by JeromePowell also alarmed equities traders as the Fed Chairman discussed stimulustapering and upcoming changes in their extremely accommodative monetary policy.In regards to tapering, Chairman Powell said that the U.S. Central Bank was "ontrack" to begin reducing its purchases of assets.
Speaking virtually at a webcastduring a panel discussion at the BIS-SARB Centenary Conference Chairman Powellsaid that the U.S. labors market might continue to improve and reach "maximumemployment" next year. It is widely believed that it is the "maximumemployment" final hurdle that would result in the Federal Reserve beginning itsprocess of interest rate normalization or lift-off.
Chairman Powell inferred that theFederal Reserve is ready to use interest rate hikes to combat inflationarypressures. He added that Inflation continues to have the risk of moving higher,and persisting for a longer period than it had originally anticipated.
Underscoring that the FederalReserve is ready to use its tools to bring inflation lower he said, "We need tomake sure that our policy is positioned to adjust to a range of possibleoutcomes."
While it is exceedingly clearthat rising inflation continues to be highly supportive of both gold and silverpricing, the resulting steps that the Federal Reserve would take to limit ortemper inflationary pressures has the opposite effect. This is why we believethat these two forces create cross-currents, or a double edge sword when itcomes to inflation.
Chart 2 is a daily Japanesecandlestick chart of gold futures. We have added a compression trianglecomposed of the series of lower highs, and higher lows to indicate major levelsof support and resistance. Today's close at $1793 is just below the upper-levelresistance line created by a series of lower highs. On a technical basis, westill see $1800 per ounce as the key and critical price point that gold needsto take out on a closing basis to indicate that the rally which began in lateSeptember still has momentum left which would move gold higher. An effectiveclose above $1800 would put the next target at $1836 which is the top createdat the beginning of September.
For those who would like more information, simply use this link.
Wishing you, as always, good trading and goodhealth,
By Gary WagnerContributing tokitco.com
Follow @garyswagner
gary@thegoldforecast.comwww.thegoldforecast.com