Gold – The $1490 Level Is Critical

Gold futures are holding support around $1500 ahead of tomorrow’s Fed decision. Our intermediate cycle work supports a correction into October or November. A breakdown below $1490 in gold futures would signal the next leg lower in precious metals.

Intermediate corrections are natural. In gold, prices tend to bottom about every 6-months (give or take a month). The last low came in May. If the current cycle remains on course, the next significant bottom should arrive in late October or early November.

Gold surged as US interest rates plunged over the summer. The 10-year Treasury yield collapsed from 2.57% to 1.43% while gold rocketed from $1267 to $1566 in 4-months. With Treasury yields stabilizing, gold is finally taking a breather.

In August, Fed fund futures were pricing in a September rate cut at 100%. Those odds have slipped to 58.8% before tomorrow’s announcement. A pause on interest rate cuts could send gold below the critical $1490 level.

Longer-term we are very bullish on gold. Prices broke out in June and confirmed a new bull market. On a near-term basis, we are expecting a multi-week correction and perhaps the last great buying opportunity as gold declines into the next 6-month low.

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After peaking at 440 in August, our Gold Cycle Indicator (GCI) dipped back into neutral territory. We won’t expect a sustainable bottom in gold until the GCI slips below 100 (currently 334) in October or November.

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Disclosure: None.

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