The Fed pulled an “okey doke” on the markets Wednesday, which is an urban slang way of saying the Fed played a trick on us all. After jawboning in May about the need to “taper,” quantitative easing, Ben Bernanke and crew — save for the hawkish Fed Governor Esther George — all voted to keep the current $85-billion-per-month bond buying scheme in place for at least a little while longer.
The reaction to the unexpected Fed non-move was a big spike higher in equity prices, a drop in bond yields, a selloff in the U.S. dollar — and a huge move higher in gold.
Click to Enlarge Gold prices, as measured by the SPDR Gold Shares (GLD), an ETF pegged to the spot price of gold bullion, shone more than 4% in Wednesday trade. The buying in GLD sent the fund roaring past the 50-day moving average, a clear technical trigger that argues in favor of a continued push higher in the value of the yellow metal.
Interestingly, gold prices had basically bottomed in June and had moved up nicely in August. However, the near certainty by just about all of the so-called experts on Fed tapering caused gold to selloff in September. There were also a lot of short positions in gold leading up to today’s Fed announcement, but those shorts got caught in a squeeze after the Fed’s decision today, and the ensuing short covering helped fuel the big buying in the precious metal.
For both technical reasons and sentiment reasons, I suspect that the rally in gold is just getting started here. That means it’s time for traders to punch the golden “no taper” ticket here, which could be good for another 10%-15% upside in GLD over the next four to six weeks.
At the time of publication, Jim Woods was long physical gold. He does not, however, have a position in GLD.