Unemployment claims and the Philly Fed manufacturing index continued to show good signs that the US economy is in a recovery. While equities continued to eke out gains, the highlight of the session was the rally in gold. After testing a key downtrend resistance twice this week, gold was finally off to the races after breaking this downtrend. With the Fed maintaining its dovish stance and Europe ready to provide unprecedented stimulus, gold has started to look attractive again.
The market clearly went into the Fed meeting expecting an acknowledgment of recent inflation forces and didn’t get them. In fact, Yellen said the recent pick-up in inflation was just ‘noise’. In fact, it’s not just gold, as silver also got a big boost and rallied around 4%. This line had been in place since April and capped any further gains. The break was very convincing and gold managed to knock out 1300 and extended this gain to a high of 1322.
While it is tempting to chase the price higher, perhaps waiting for pullbacks before buying gold is a more sensible strategy. On the weekly chart, it seems the precious metal is now facing another test with a downtrend resistance in play.