Gold’s Post-Fed Rally Pattern Remains Intact

Gold prices have shown a pattern of rallying in the days that have followed Fed meetings in the year thus far. This time around, it might just lead to a significant breakout.

Gold Fed Oct 31

Gold prices have shown a tendency to rally after Fed meetings in 2019. This has happened (so far) in six of the last seven meeting, if including yesterday’s meeting.

In most cases, gold prices have rallied for about three days after the fed meeting. What’s interesting is the technicals involved at the moment. If gold prices stay near current levels by the end of the day, it could signal a bullish breakout from a consolidation pattern. This would tend to encourage even further buying, and could see the shiny metal make another run for fresh yearly highs.

The Fed Offers a Catalyst for a Bull Run

The price of gold gained upward momentum during yesterday’s Fed press conference. The meeting revealed that the Fed has shifted its stance toward monetary policy.

In prior cuts this year, Fed Chair Powell tried to downplay the matter somewhat. He did this by using phrases such as ‘insurance cut’ or ‘mid-cycle’ cut. All this implies that the Fed remains on track to raise rates in the broader picture.

Yesterday’s meeting was different. Powell signaled that the Fed won’t be raising interest rates anytime soon and that a significant improvement is required for them to consider tightening again.

At the same time, he also hinted that the Fed will not be cutting rates any further. The markets don’t seem to agree with this point, however, as the money markets point to a one if five chance of another cut by the end of the year. This is pretty much unchanged from how they were pricing it ahead of the Fed meeting.

Technical Outlook

Last week, price action in gold might have caught at least a few traders on the wrong side of the trade. There was a rally above a trendline that originates from the September high on Friday. The upward move, while carrying a lot of momentum initially, was not sustained, and prices closed below the trendline to end the week.

This fake breakout might have shifted sentiment in the markets, reinforcing a bearish bias. This same bias stands to fuel the current upward trend.

Gold Daily Chart

Indeed, gold is back above this trendline. And of course, where it closes in relation to it by the end of the day will be important.

I see a bit of a hurdle at $1508 going into the New York session. I think a close above the level at the end of the day would be the strongest bullish scenario.

On the other hand, if we close back below the trendline, it would invalidate the potential breakout.

Where Do We Go From Here

While technical developments will be important in the near-term, investors will also be mindful of tomorrow’s NFP jobs report. This report often accompanies a volatile reaction in the market. We can easily see a scenario where gold gives up gains on a strong report.

This is not something I foresee necessarily. US data, or even global data for that matter, has been pretty much weak across the board for several weeks. I have no reason to believe there will be a big surprise to the upside in tomorrow’s US jobs report.