Gold Market Analysis – June 19th 2019

In last analysis, we mentioned about the correction phase of gold market after President Trump announced that no more tariffs imposed on Mexico. Nevertheless, the correction was short-lived. It lasted for only two days when gold dropped from 1348 to 1320. It found strong support at 1320 and went up to reach 1358 as the highest price so far. Remember we talked about our short term target at 1360 ? Gold almost reached that 1360 target, just 2 dollars short. Since then, gold pretty much has corrected a little bit and traded sideways until today. We expect today will be a wild day for gold as Fed will announce their monetary policy after the FOMC meeting. The whole world will be watching for any clues as markets expect that Fed will announce their rate-cuts as soon as July or September.

In very short-term, any Fed’s announcement will have a big impact on gold market. But for a long term, we do not see any strong correlations between Fed fund rates and gold. You will probably hear a lot from media or read a lot from newspaper that if Fed decides to cut interest rates, gold price will explode. To be honest, we do not think it is a valid viewpoint. If you look back from the past as far as the 1970s, you will see that interest rates and gold price do not have a strong negative correlation. There were some periods when interest rates went up, gold also went up. And there were some periods when interest rates went down, gold also went down. Most recently, when Fed announced to raise interest rates from 0% back in late 2015, gold bottomed at $1050 and never looked back. And since that time, interest rates already has gone up 2.5% but gold has never dropped lower than 1100. Therefore, there is very little correlation between gold and interest rates, at least in a medium to long term.

However, what we do see here is the negative correlation between interest rates expectation and gold price. That being said, if interest rate is expected to go up, gold will go down. And if interest rate is expected to go down, gold will go up. That would explain why gold went down when Fed was expected to raise rates but then it went up after the actual raise. So now Fed is expected to cut interest rates, gold will go up and it already does. But what after the actual cut ? If we apply the same logic, it means gold will go down after the actual cut. So for today Fed’s announcement, we think of two cases that can happen. First case is Fed will announce future actions for rate cuts, gold immediately will pop up and then start to go down because it is already priced in a rate cut. Second case is Fed will still be patience and not rushing to cut interest rates, gold price will drop immediately and probably hard. So either case, we think gold will possibly start its big correction phase after today’s FOMC announcement unless Fed will say something very dovish.

Gold Daily Chart

On the above daily chart, we see a pattern that may suggest some kind of short term reversal. Last Friday’s candle formed a “gravestone doji” pattern which is a sign of reversal. It appeared at the multi-year resistance 1360-1365. The following day or last Monday also was a down day which confirmed the pattern. Therefore we think gold can possibly start to go down to 1300-1310 areas unless it breaks recent high at 1358. So if you want to short this market, we recommend to take actions near the top and set a tight stop loss just above recent high at 1358. However due to today’s FOMC, it is best to stay out of this market because it can have a lot whipsaws on both sides.

So if gold is unable to break recent high at 1358 or the multi-year resistance at 1360-1365, we will see a big correction in gold to 1300-1310 areas. But due to today’s FOMC, we will just keep watching the market and see how it reacts after the news. Once the market stabilizes, there will be opportunities to have a good setup and enter the market again.

Kind regards,

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