How To Trade The Fed: The Gold selloff could be near complete
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Gold futures are most likely setting up to be a sell the rumor buy the fact situation after a string of good economic data and hawkish Fed officials have made it clear that a March 15th rate hike is a go. Odds over the past three weeks have gone from 25% to a 94% near dead lock on 25 basis-point rate hike.
Looking into direction of gold after the past two December meetings we have seen a repetitive pattern where gold futures back in October 15, 2015 reached a peak of 1191.7 before declining $140/oz within two months on speculation of a rate hike at the December meeting. Once the decision was made for a rate hike gold futures went on a $300/oz rally peaking in August at 1374.2. This is when gold started another slide on rate hike speculation at the next December 16, 2016 Fed meeting down to 1128.5. These two meeting proved to be marking a bottom with subsequent rallies to follow. This is why I believe we are setting up for a similar Situation with this Tuesday's Fed meeting.
A possible strategy and key levels to watch out for would be a sustained decline below the January 27th low of 1179.7 which would be a 61.8% retracement from the recent peak 1264.9 and would indicate that prices could slide back to descent lows. With a break back above 1220 we should see an upward push to the near term highs of 1260.
Either way this year is going to prove to be historic with multiple rate hikes on the table with March, June and December being the likely suspects. Keep an eye out on wave analysis to try and identify when a trend is beginning and when it is ending.