If you remember in Monday’s commentary in The Market Gage, Wall Street Gold Traders were calling for the dollar index to test the 93.50 area sometime this week. Well, they were right, but I don’t think they really knew what the catalyst would be.
At the time of the Fed announcement at 2:00 pm Wednesday, the dollar index was trading at 94.29. Right after the announcement the dollar started to slide, breaking thru the level the traders had called for at 93.50 and traded to a low of 93.39 that afternoon. This fueled the rally in gold thru the $1,252 level of resistance and subsequently took out stops at the $1,258 level in the August contract.
The selloff in the dollar was attributed to the dovish comments made by the Fed on inflation. A slight shift in wording took the market by surprise. In June the Fed announced that inflation was “running somewhat below 2 percent,” but in Wednesday’s comment the Fed said “inflation was running below 2 percent.” The change in words from “somewhat” to “was” was taken by the market as a dovish tone and the dollar sold off, rallying the price of gold ten dollars.
Have a wonderful Thursday.
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