As we get closer to a possible Federal Reserve announcement at the Fed’s annual symposium later this week in Jackson Hole, Wyoming, investors eagerly await a possible announcement of more stimulus by Chairman Bernanke.
Disappointing market data released over the last few months has the Fed stating they have the tools necessary to come in and provide stimulus to prevent another recession. In my opinion, recently released “Minutes” from the Fed’s last meeting seem to have given commodity markets a recent boost, with equities rallying and gold breaking out to the upside.
A LITTLE BACKGROUND
Given the recent readings on global macro-economic weakness in Europe, China, and the U.S, central banks around the world have provided more liquidity in one form or another to promote economic growth. The Federal Reserve in June extended their Operation Twist Program for the remainder of the year. However, that hasn’t resulted in a reduction in the jobless rate, and leaves more investors asking the question if QE3 is on the way.
SIDEWAYS RANGE
The gold market had been mired in the range of $1,560 to $1,630 per ounce, for the last three months, beginning in May through Mid- August. Due to the fact that unemployment hasn’t improved and has actually ticked up, in my opinion, this may have increased the chances of possible more easing coming this fall. It appears the gold market took notice last week and broke out its previous range. In fact, since gold hit a low of $1592.1 basis December futures on August 15, gold rallied just over $87 in less than two weeks to make a high of $1679.3 on August 27.
DIP BUYING
It is my belief that some traders have priced in more economic stimulus and this viewpoint may have influenced the move higher. Traders should note that Friday’s speech by the Fed Chairman is the first of many key speeches ahead for investors to digest.
RETEST OF FEB HIGHS
Unless Bernanke completely dismisses another round of QE3, I believe dips will continue to be bought in the gold market and trading back up to February highs is certainly not out of the question.
THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES. A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
