The Fed Has Spoken. Are We Seeing Gold’s Demise?

Gold declined profoundly after the FOMC meeting at which the tapering was discussed. Given the $70 drop this week, has the trend changed?

The Fed spoke. The markets reacted. And – as it’s usually the case – the technical indications correctly preceded the news and subsequent market moves.

I started yesterday’s analysis with the following:

The world is holding its breath for today’s comments from the Fed, knowing that one of the approaches would be a game-changer.

If the Fed hints that it’s ready to taper its stimulus, the long-term rates will likely rally, whereas stocks, precious metals, and commodities will likely slide. But if they don’t do that, it seems that whatever has been going on in the above markets will likely continue based on their technical developments.

In the case of gold, it means either a measured late-2012-style decline or a more powerful slide similar to the moves we saw in 2008 and 2020. Which one will it be? Either way, the next big move is likely to be to the downside (even if dovish comments were to spur some immediate-term gains). Why? Because history tends to rhyme, and right now, gold is simply repeating its price patterns from the past that were preceded by relatively similar events (invalidation of the breakout to new all-time highs – just like in 2008; similarity with regard to price moves, volume, and key indicators – just like in 2011-2012).

I will elaborate on this in the following part of today’s analysis, but in short, the Fed indicated that it may raise rates sooner than previously expected in response to strong growth and rising inflationary pressures. And the markets plunged. Furthermore, it seems that it’s just the first crack in a huge bearish dam.

Let’s take a look at the charts.

Gold declined profoundly, and it’s now about $70 lower than it was at the beginning of this week. However, the exact number is not that important. What is important, gold broke below not only its rising support line but also its declining medium-term support line (the one based on the 2020 and 2021 highs).

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William K. 1 month ago Member's comment

The price of gold seems to be directly related to the lack of confidence in the economy.

Fiona L 1 month ago Member's comment

Fantastic analysis PR! Couldn't resist a smile and hurrah for your tremendously accurate forecast! Well done, and a vindication from being a lonely but accurate bear.