The Federal Reserve hiked interest rates by 25 basis points to a 75 to 100 basis point range on Wednesday, March 15, 2017. The interest rate hike was widely expected and priced into the market, but the central bank’s forecast for only two more rate hikes was fewer than economists expected. Government bonds and the dollar moved lower in response, and precious metals like gold moved higher in the wake of the announcement.
Gold prices are inversely correlated to inflation-adjusted interest rates since it does not offer investors any kind of yield.
From a technical standpoint, gold prices rebounded from the psychologically-important $1,200 level and experienced a breakout from trend line and 50-day moving average resistance at $1,216.48. The next major resistance stands at trend line and 200-day moving average resistance at $1,262.73 with an intermediate resistance at $1,243.90 near its prior reaction highs. The Relative Strength Index (RSI) remains neutral at 53.75 and the Moving Average Convergence-Divergence (MACD) could see a near-term bullish crossover.
Traders have also been closely watching the Direxion Daily Gold Miners Index Bull 3X Shares (NUGT) as a leveraged play on rising gold prices. The ETF recently broke out from trend line resistance at around $9.00 and is nearing its 50-day moving average at $10.35. If it breaks out from those levels, the next major resistance isn’t until its prior reaction highs of around $13.50, which creates a healthy opportunity for profit. The MACD also stands ready for a bullish crossover and the RSI appears relatively neutral.
The long-term picture for gold remains a little less certain. Despite the central bank’s dovish headline comment, bankers acknowledged that total inflation is already close to its 2% target rate at the core and business investment has "firmed somewhat." These comments suggest that the Fed is still holding its cards close to its chest and providing few hints as to what can be expected if the economy continues to show signs of improvement.
Stocks courtesy of StockCharts.com. Author holds no shares in the equities mentioned.