Finally, gold is on the move. After the FOMC announcement on Wednesday, gold and bonds got a 'safe haven' bid. It appears investors were not really amused with the speech of Mrs. Yellen.
From a long term perspective, gold did what it had to do: bounce from a secular trendline. As the first chart shows, it was gold's "last chance" to bounce.
Shorter term, we see some upside potential towards the $1220 area, where a crucial test for gold is awaiting. As annotated on the chart, gold bulls really want to see a push about that price level, which coincides with a descending trendline, in order to signal that gold's bull market is still alive and kicking!
Our view is somehow mixed. Mrs. Yellen clearly stated that the economy has difficulties achieving the 2 pct inflation rate, a key objective of U.S. monetary policy. Bloomberg notes that the inflation rate could have risen with 11 pct year-on-year (which is a relative increase), but "the latest advance will curb already slowing economic growth and put downward pressure on an inflation rate that the Fed judges is too low as it is."
For clarity, we are not saying that we agree with any of these objectives, or policies. We are simply looking for leading indicators for the precious metals complex, and inflation expectations is known to be one of them.
From that perspective, we are not convinced that a breakout in gold is in the cards. The black swan, however, is a flight to safety. Gold, just like bonds, have always been considered safe havens, so in this 'risk off' environment there is a fair chance that gold will be bid.
These are interesting times. And we should not exclude that gold will do what it's good at: surprise anyone, including ourselves.