Gold managed a modest weekly gain, settling at $4,416 per ounce, up $26 from the previous Friday's $4,390. The advance, though slight, was enough to extend the metal's long-running weekly winning streak, even as the Federal Reserve raised interest rates and the dollar strengthened.
The move came as a surprise to some, given that a higher dollar and rising yields typically weigh on gold, which pays no interest. Yet, as is often the case, the metal's reaction to the Fed's decision was more nuanced than conventional wisdom might suggest.
Fed's Rate Hike and Market Reaction
As widely expected, the Federal Open Market Committee (FOMC) voted unanimously to raise interest rates. The decision, which had been priced in by markets, saw the dollar index climb to 99.95 by Friday's close, up from 99.42 just before the policy statement was released on Wednesday.
Gold, however, held its ground. At the moment the Fed's statement crossed the wires, gold was trading at $4,399. By Friday's settlement, it had risen to $4,416. This resilience, in the face of a firmer dollar, suggests that buyers were willing to step in on dips.
The Fed's accompanying statement noted that “economic activity is expanding at a solid pace.” That assessment, however, contrasts with data released on Friday from the Conference Board, which showed its Leading Economic Index declined in August, pointing to a potential slowdown ahead.
Technical Signals Point to More Upside
Several technical indicators are now flashing bullish signals for gold. The metal's 21-day linear regression trend, a measure of short-term momentum, has been declining, but the slope is flattening. More importantly, gold has just crossed above its “Market Magnet,” a proprietary indicator that often signals further buying when price pierces above it.
Additionally, gold's valuation oscillator suggests the metal is poised to move above its fair value line, a development that over the past 25 years has been a reliable precursor to higher prices in the near term.
Volume data from the past ten trading days also supports the bullish case. While gold recorded four up days and six down days, the median contract volume on the up days exceeded that of the down days by 27%. This positive money flow indicates that larger players are accumulating positions on strength, rather than distributing on weakness.
Key Levels and the Path Ahead
For the coming week, the flip-to-short level for gold sits at $4,154, a full $262 below the current price. The expected weekly trading range is 224 points, which suggests limited room for a sharp decline.
Analysts remain cautious, however, citing the ongoing conflict between the US and Iran as a wildcard. A restrictive oil supply could command more dollars, which would in turn pressure gold. Still, the metal's long-term parabolic trend remains intact, and the target of $4,959 stays on the table as long as that trend holds.
Key takeaways
- Gold rose $26 to $4,416, extending its weekly winning streak despite a Fed rate hike.
- The dollar strengthened to 99.95, yet gold held its ground, showing resilience.
- Positive money flow, with up-day volume exceeding down-day volume by 27%, suggests buyer interest.
- Technical indicators, including the Market Magnet and valuation oscillator, point to further upside, with a target of $4,959.
Common questions
Why did gold rise even though the dollar strengthened?
Gold often moves inversely to the dollar, but other factors can offset that relationship. In this case, positive money flow and technical signals suggested that buyers were willing to step in on dips, even as the dollar firmed.
What is the significance of the $4,154 level?
That is the flip-to-short level for the coming week. If gold were to close below that level, it could signal a shift in the short-term trend. As of now, it sits well below the current price, suggesting limited downside risk in the near term.
What is the Market Magnet indicator?
The Market Magnet is a technical tool that plots a moving average or similar line. When price crosses above it, it is often interpreted as a bullish signal, indicating that buying pressure is increasing.
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In conclusion, gold's ability to hold its ground in the face of a Fed hike and a stronger dollar is a positive sign. While the path ahead may not be smooth, the technical and volume data suggest that the metal's longer-term uptrend remains intact.