Gold Price Prediction – Prices Fall on Fed Decision

Gold prices dropped despite a decline in the dollar as the Fed delivered a dovish hold. While benchmark interest rates remain unchanged, the Fed announced that they plan to reduce the volume of bonds they purchase each month, effectively tapering their quantitative easing. The Fed also said that the economy has progressed.

Technical analysis

Gold prices dropped sharply, falling to support levels seen near the November lows at 1,758. Resistance is seen near the 50-day moving average at 1779. Short-term momentum is negative as the fast stochastic generates a crossover sell signal. Prices are oversold as the fast stochastic is printing a reading of 10, below the oversold trigger level of 20. Medium-term momentum has also turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD line). The MACD histogram is printing in negative territory with a downward sloping trajectory which points to lower prices.

The Fed Kept Rates Unchanged

The Federal Reserve announced Wednesday that it will begin reducing the pace of its monthly bond purchases in November. The process will see reductions of $15 billion each month,  $10 billion in Treasurys and $5 billion in mortgage-backed securities,  from the current $120 billion a month that the Fed is buying. The Fed also said that it believes that inflation is expected to be transitory.