Wednesday’s minutes from the January Fed meeting revealed that the group was not sure whether they would raise interest rates again, this year.
Regarding the balance sheet, almost every Fed participant said it would be desirable to announce sooner rather than later a plan to stop reducing the Federal Reserve’s asset holdings before the end of the year.
Right after the Fed news was released, the price of Gold turned downward and dropped six dollars and since then sold off significantly.
This significant turnaround in the price of Gold has me baffled. True the dollar index has rallied somewhat, and Bond prices have sold off but the price of Gold shouldn’t have reacted as it did.
This morning, a few Wall Street Gold traders said that they liquated their long positions as soon as the price of April Gold touched the $1,329 level. Every indication in trading activity below that level seemed to be stops executed and option activity at the $1,325 level, which accelerated the sell off.
I would be very surprised to see the price of spot Gold penetrate the next level of support at the $1,318 level. On the technical side I think this level should be well supported. In my opinion, the selloff was way overdone and now I expect investors to see this selloff as a buying opportunity.
Earlier this month, the World Gold Council announced Gold demand in 2018 reached 4,345.1 tons, up 4% from last year. This was largely driven by demand from central banks, which added 651.5 tons to their official reserves, the second-largest annual increase on record.
It looks like this last move to the downside got many nervous longs to liquidate their Gold holdings. But one must remember just a few months ago we were trading at the $1,160 level, so if the price stays above the $1,300 level, many investors still see the price of Gold will continue to have upside potential.
Have a wonderful Friday.
Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals for information and thought-provoking purposes only and does not purport to predict or forecast actual results. This editorial opinion is not to be construed as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein cannot be attributable to Dillon Gage. Reasonable people may disagree about the events discussed or opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. It is not a solicitation or advice to make any exchange in commodities, securities or other financial instruments. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.