Gold prices soared to a five-year high after Wednesday's Federal Reserve meeting. While the central bank left interest rates unchanged, the governors opened the door to a possible rate cut in the future. Treasury yields moved sharply lower in reaction to the dovish tone, with the 10-year note slipping below 2% for the first time since November 2016. The dollar similarly moved lower against other major currencies.
In addition to the news from the Fed, geopolitical risks are on the rise following Iran's decision to shoot down a U.S. spy plane. President Trump tweeted that "Iran made a very big mistake!" and oil prices soared 6% amid a greater risk of a conflict in the region. Gold tends to rise when geopolitical risks rise since it's seen as a safe-haven investment and an alternative to stocks and bonds.
From a technical standpoint, the SPDR Gold Shares ETF (GLD) rose more than 2% during Thursday's session, breaking out from trendline resistance following a bullish engulfing. The relative strength index (RSI) moved into overbought territory with a reading of 81.42, while the moving average convergence divergence (MACD) extended its rally higher. These indicators suggest that the gold fund could see some near-term consolidation, but the long-term bullish trend remains in tact.
Traders should watch for some consolidation above trendline resistance at around $127.30 over the coming sessions. If the ETF breaks down from these levels, the price could move back into its price channel with a high of $127.30 and a low of $120.00. If the ETF extends its move higher, the next major area of resistance is prior highs of $136.00 from September 2013 or prior all-time highs of around $185.00.
The author holds no position in the securities mentioned except through passively managed index funds.