Gold returns some gains after Fed rally

After yesterday’s rally, the gold price has given back some of its gains.

Gold bars
Source: Bloomberg

Fundamental issues such as the crisis in Ukraine and the growing violence in Iraq have been unable to move gold higher than the $1280 level, but Wednesday’s confirmation from the Federal Reserve that it will be holding interest rates at low levels for a considerable time has given fresh impetus to the precious metal.

One of the reasons that gold deters investors is the lack of income returns it brings in comparison to bonds or equities; the news about interest rates dilutes this importance. Markets are also becoming aware of the Fed’s inability to completely control inflation, and these two aspects have compounded to force gold higher. In the space of 24 hours the yellow metal consequently broke through the 50-, 100- and 200-day moving averages, no doubt triggering a number of stops and helping the precious metal increase by more than $50 in one day.

The resistance that gold met in breaking above its moving averages has now become its support, the first level of which should come in around the $1304.50 level.

Source: Bloomberg

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