Will The Federal Reserve Clobber Gold?

| October 31, 2019

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The Federal Reserve will release another announcement today or set of notes, depending on how you want to look at it. Either way, it will probably be a critical day for gold.  First, let’s see where we are.

Gold has basically been going sideways for about 2 months now, trending sideways after a local high. There is some debate out there about what level traders should watch for gold.  Your friendly Gold Enthusiast likes to err slightly on the side of caution for several reasons.  First, keeping levels “tight” leads to overtrading, also known as “getting whipsawed”.  Slightly wider, more realistic levels that take into account the market’s predilection for occasional blips lead to better trading and much lower blood pressure.

Secondly, you have to gauge whether a blip is a blip, or if it really is the bottom of a channel. In the case of gold, the downward blip in question came on 9/30 and 10/1, when GLD dropped just below 138. It recovered to finish the day on 10/1 at 140, but there are two solid chart points at 138.

Now, 138 was first ID’d as a possible important price back on 8/5 when a spinning top centered on 138. Spinning top centers don’t always indicate important prices for the future, but sometimes they do, so you have to keep an eye on them.  So that adds a little weight to the discussion.

Finally, there are lower wicks extending down into the middle of the 138-to-140 range on 10/11 and 10/15. Lower wicks tend to give warnings, which is why they’re sometimes called “shadows”. Around here we also call them “pointy fingers”, pointing out what the possibilities might be.  Enough pointy fingers in one direction means get ready, something’s about to happen.

Back to the Fed. We fully expect the Fed to lower its benchmark rate of 0.25% today. That’s probably already priced into the market, though you should expect the usual 2-5 hour hangover thrash. We’re looking for a small upward thrash in equities, and a small downward thrash in gold and silver.

If we see GLD close below 138 it may be time to possibly buy a put option to guard against any further downward activity. With no resolution in sight for US Federal deficit issues, a banking system lacking liquidity (how is that even possible when “everything is so good”???), and international markets weakening by the day, the long-term picture for precious metals still looks strong, so we’re not looking to sell anything at the moment.

Signed,

The Gold Enthusiast

DISCLAIMER: The author has no direct position in any security mentioned in this article. The author is long the gold sector via positions in NUGT, JNUG, a few junior miners, and covered calls on part of the NUGT position. The author may initiate new covered call positions in NUGT and/or JNUG in the next 72 hours if market conditions warrant.

Note: This article originally appeared at The Gold Enthusiast on October 30, 2019.

 

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Category: Gold

About the Author ()

Mike Hammer has had a wide-ranging career, with trading and investing as a continuing theme. Mike graduated from UC Berkeley with a business degree, then worked with Macy's in their operations arm. He left Macy's and spent a summer trading his own account, which taught him a lot about trading in general and markets in particular. Trading through the Black Monday and the Crash of 1987 showed him how most people are unprepared for upheavals in their trading. He then joined Waddell & Reed as a financial advisor, helping regular people understand their finances and meet their life goals. Then came the usual story - Mike met and married the lady of his dreams. They moved to upstate New York, where Mike worked first for a small manufacturing consulting company, then Cornell University. While loving the work and the higher-education atmosphere, Mike missed the world of finance. Eventually, he signed up for stock trading coaching with the Adam Mesh Trading Group, to learn from people who understood modern markets. Within a year, Adam asked Mike to become a stock trading coach. Since then, Mike has trained over 200 individuals, spoke at several national conventions, and is a frequent contributor to conference calls across the Adam Mesh community. Mike writes The Gold Enthusiast daily newsletter, runs the Golden Hammer trading service, and participates in the Mesh Private Portfolio. He also keeps a position in international education which keep him in touch with "the student mindset". Mike closely follows the gold, energy, and financial sectors. His motto is "Plan your trade, then trade your plan!"
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