Nothing has changed fundamentally for gold.
Gold and silver edged higher over the past two sessions after falling to seven-month and one-year lows, respectively, at the end of last week. Bearish sentiment within the precious metals complex is growing ahead of Wednesday’s policy decision from the Federal Reserve.
Many expect the central bank to adjust the language in its policy statement, perhaps dropping the phrase about keeping interest rates near zero “for a considerable time” after QE ends in October. If the Fed doesn’t change its tone, gold could see a short-term relief rally, potentially pushing prices back above $1,250.
However, sooner or later, the Fed will become hawkish and it will raise interest rates. That day is coming, but that’s been known for a long time. In fact, the gold market priced that in last year in June, when prices collapsed to $1,180 the first time around.
Since then, gold has been range-bound, fluctuating between that $1,180 low and roughly $1,400 on the upside. Right now, the mood in the gold market is sour and prices are heading for the bottom end of the range. Just a couple months ago, the mood in the gold market was upbeat and prices were topping $1,350.
Fundamentally, nothing has changed. It’s merely the sentiment in the market that has fluctuated. The current bearish sentiment could set gold up for a third test of the important $1,180 level. Yet, just as was the case the first two times, that decline will likely end up being a great buying opportunity.
Bottom Line: There is nothing to suggest that gold is winding up for a massive plunge from here.
Traders should let the bearish sentiment in the market run its course and add to positions if prices fall to $1,180