Don’t Mistake Fed Hike Gold Bounce for Rally

gold coins on stock chart

Gold dipped again on Tuesday in the U.S. market, still barely above the 10 month low that prices hit on Monday. This should not be surprising news to anyone familiar with all of the factors bringing pressure:

  • Charts are all technically bearish.
  • S. Dollar Index is still going strong. Charts remain technically bullish and prices aren’t moving far from the thirteen year high they hit recently.
  • Market Optimism is evident as investors and traders remain upbeat

However, there could very well be a bit of a bounce tomorrow:

Here’s why.

There is almost unanimous agreement that the Fed will raise rates by a 25 point basis on Wednesday, and that is built into markets everywhere. Often, when this type of event finally takes place, there is a little bit of a selloff in the stock market. This phenomenon is commonly referred to as “buy the rumor, sell the fact”.

Since the gold market works in an opposing parallel to the stock market, that adage would be reversed. So a lot of the most recent selling could be attributed to, at least in part, to “selling the rumor”. This would naturally be followed by “buying the fact”, which could possibly result in a noticeable little bump.

Don’t mistake this for a rally, because it won’t last long, maybe not even a full trading day.

Still, it doesn’t hurt to stress that the statement made after the FOMC meeting could still have a significant effect on gold prices if it contains implications for the future beyond the expected rate hike. The news would, of course, have to contain something of a surprise.

The expectation is that Committee will not initiate any more hikes until after it becomes clear exactly how a Trump presidency will be effecting the nation’s economy. Anything other than this will work with buying bump…or against it, depending on the news.