Gold prices moved sharply higher and the dollar moved lower after the Federal Reserve raised interest rates by a quarter point this week. While many experts expected three more rate hikes this year, the central bank stayed the course with its forecast for two more rate hikes. The Federal Reserve expects that labor market conditions will remain strong, but inflation has been slow to catch up with the economic growth.
Gold also experienced a boost as a safe-haven asset amid ongoing concerns over a trade war. President Trump announced $60 billion in new tariffs on Chinese imports following already announced tariffs on steel and aluminum imports earlier this month. Several industry groups warned that the move could provoke retaliation and trigger a trade war, which could put the country's strong economic growth at risk. (See also: How Can ETF Investors Benefit From Trump's Tariffs?)
From a technical standpoint, the SPDR Gold Shares ETF (GLD) broke out from upper trendline resistance, the 50-day moving average and the pivot point at around $126.14. The relative strength index (RSI) appears neutral at 55.65, but the moving average convergence divergence (MACD) has experienced a steady downtrend since early February. These indicators suggest that the fund could see a breakout if the MACD experiences a crossover.
Traders should watch for a further breakout from R1 resistance at $127.67 potentially to retest highs at around $129.00. If the stock breaks out from these levels, the fund could reach R2 resistance at around $130.34. A breakdown from the trendline support level at around $125.50 could lead to a move down to $124.00, while a further breakdown from these levels could lead to a move to S1 support at $123.36 or the 200-day moving average at $122.52. (For more, see: Return of Volatility Triggers Buying Opportunity in Gold.)
Chart courtesy of StockCharts.com. The author holds no position in the asset(s) mentioned except through passively managed index funds.