And so the waiting is over, with the Fed having deliberated and discussed for two days before deciding the US economic machine is no longer in need of life support, and is now well enough to breathe on its own. This apparent confidence was instantly reflected yesterday in the US dollar, which rose strongly on the news, driven higher not so much on the prospect of rising interest rates in the future, but more so on the prospect of increasing interest rate differentials.
For gold, the reaction in the US dollar was yet more bad news, with the precious metal moving firmly lower and breaking below the key resistance level in the $1230 per ounce region. This level is now adding further weight to the heavily bearish tone for gold as it tests a secondary platform of support in the $1208 per ounce region at the time of writing.
The question now is how far gold prices are set to fall, and with the US dollar now breaking through the resistance region at 86 on the DXY index, this could then trigger further gains for the currency of first reserve, driven higher by both a strong technical and fundamental picture. If so, then gold looks set to break below the $1200 per ounce level in due course, and back to test the $1185 per ounce in the short term. From there, it’s a short hop to $1150 per ounce and lower.
For gold bugs, the hope is that the Swiss referendum comes to their rescue, but with so much momentum now in the move lower, even sustained buying from the SNB may not be sufficient to halt the current downward trend.