Gold Price Prediction – Prices Break Signal on Dovish Fed Decision

The Fed kept interest rates unchanged at 2.25-2.50% range, as the committee focused on the Fed fund rates and the balance sheet. In essence the Fed said that they were in wait and see mode, but the risks are no longer tilted in favor of additional rate hikes. The Fed appears to have capitulated to the markets, and will make decision as they go along. No longer will the balance sheet be on autopilot. The Fed said that they had ample reserves on their balance sheet which means that they could be done with running it off.

The Fed also said they would be patient and would be diligent about the runoff in their balance sheet. Yields tumbled on the news, allowing gold prices to rise. The Fed kept the momentum growing as the discussed conflicting signals signal that came about because of the government shutdown, the trade negotiations with China and Brexit.

Technical Analysis

Gold prices broke out and continued to move higher. The dollar tumbled in the wake of the Fed’s decision. Gold prices are now poised to test the May 2018 highs at 1,325. Support is seen near the 20-day moving average at 1,291. Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs as the MACD (moving average convergence divergence) line (the 12-day moving average minus the 26-day moving average)  crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in the black with an upward sloping trajectory which points to higher prices.

The fast stochastic has surged higher reflecting accelerating positive momentum. The only caveat is that the index is printing a reading of 97, well above the overbought trigger level of 80 which could foreshadow a correction.