The price action after the Fed announcement was no surprise. Bullion is seen as a hedge against inflation and a weakening dollar, and the Fed’s QE3 measures are likely to impact both. The market had been anticipating the announcement for many months and so, to a degree, had already priced in the impacts – but human nature being what it is meant that the speculators didn’t want to miss out and so the price was pushed higher still. In our opinion gold is looking quite over-bought at the moment and so a short term correction is likely, although the momentum in the market is such that a push above $1800 is probable before this happens.
Our view is that gold will quickly push on to take out the yearly high at $1790 and then go beyond to record highs above the $2000 mark. We said this in our article back in July when the price was around $1560 and it still holds true.
The Fed are committed to QE3 for the long haul – there has to be a significant drop in US unemployment rates before it will call time and adjust its policy. This will have an impact on the dollar, which in turn will push up the price of gold.
On the technical front, we are now pretty convinced that we are in major Wave 5 rally which started in August 2012 and will end (by our current projections) mid –way through next year, well beyond the $2000 level. We are currently in the first wave of this move with a target around $1800. There will be resistance at $1790 and $1800, and we’d expect a correction back towards $1750 and maybe $1725 shortly after those levels are breached before the market pushes on again to establish new highs beyond $2000 by the end of this year.
Obviously these moves will take a few months to play out and there will be some corrections along the way. Our ethos is to trade with the trend and so we are unlikely to be looking to go short unless it is clear that a intermediate top is in place. Our strategy will be to take the opportunities to sell the highs and buy the dips – this is the advice we’ll be sharing with our subscribers over the coming weeks and months.