Gold Technical Chart Turns Bullish

Precious metals have rebounded strongly over the past week, following comments from the Federal Reserve. While the FED dropped the word “patient” from their statement last week in relation to raising interest rates, Yellen clarified that removing the term patient does not mean the Fed is impatient. To the contrary, the FED plans to remain “highly accommodative” even after the first rate hike occurs.

The FED walked back expectations of significant rate increases. Any 2015 rate hikes are now expected to be marginal and 2016 forecasts have been revised lower from 2.25%-4.0% to 1.5% to 2%. Our view is that the FED will not be raising rates by any meaningful amount anytime soon. The economic recovery remains too fragile to digest such a move and inflation remains well below the FED’s target. They continue to fear deflation much more than inflation.

Given this outlook, we believe the dollar index had been bid up too high over the past year and precious metals have been sold off too sharply. The markets have also started to take notice of imbalance as the USD index has pulled back from above 100 to 97 in the past week. The momentum indicators suggest additional downside ahead with support in the 94-95 range.

Gold has bounced sharply off support at $1,141 and climbed just shy of $1,200 in the past week. The bounce off $1,141 was particularly bullish, as gold did not drop below the November low of $1,130 and instead put in a higher low. This increases the chances that gold will resume the uptrend that started in November, despite the correction throughout February and early March. Gold broke upward through this corrective downtrend line last week. The RSI and MACD on the gold technical chart both suggest that the price has additional upside in the short term.

Expectations of the FED raising interest rates significantly higher in 2015 remain incorrectly priced into gold and silver. Precious metals remain oversold and undervalued in our view. This is especially true of mining stocks, which remain near the most undervalued levels (relative to gold and silver) that they have been in roughly 15 years.

Accordingly, we have been using the latest dip to add to our positions in quality miners and streaming/royalty plays. Our latest addition is up over 20% in the past two weeks alone and we believe it could easily double as silver climbs back towards $20. The next move higher in these markets is going be incredibly explosive and it is important to be positioned before the train leaves the station.