Higher Gold? Watch the Fed

05/17/2017 2:50 am EST

Focus: COMMODITIES

Brien Lundin

President, Jefferson Financial, Inc.

The recent sell-off in gold along with just about everything else in the commodity sector seems like a distant memory, explains Brien Lundin, editor of Gold Newsletter.

It’s hard to remember that we were on the edge of a liquidity crisis in the markets last week. Gold and silver were being sold off viciously, while oil was doing a cliff dive. Margin clerks were in action, and it seemed that a multi-day rout…if not a full-fledged crisis…was on.

But the sun rose the next day and all was well, or at least relatively so. The April jobs report beat expectations at 211,000 jobs, the dollar traded a bit lower and U.S. equities rose. As a result, margin clerks were appeased and gold and silver traded generally flat.

Undoubtedly, investors are confused in the midst of the political maelstrom that Trump’s unexpected firing of FBI Director Comey has stirred up.

The latest action in the metals (as well as a mixed U.S. equities market) is a sign that markets are searching for the next excuse to move one way or the other.

They’re going to get that excuse in fairly short order, at the Fed’s next meeting  on June 13-14…and gold will be in a beautiful position going into the announcement of their latest rate-hike decision.

If the Fed hikes again as expected, traders who were leaning on the metal going into the meeting will cover their shorts, sending gold higher. We’ve seen this pattern play out with each of the last three hikes.

But if the Fed decides to forego a rate hike for some reason, gold would leap higher on such a strongly dovish signal.

I won’t jinx it by calling it a can’t-lose proposition, so let’s just say it’s highly favorable for a rebound in the price of gold.

Until then, however, we can expect traders to continue leaning on gold, with the $1,200 level an obvious target. As long as gold remains above the $1,201 level seen on March 14, it will have preserved a bullish pattern of higher highs and higher lows.

So we’ll need to wait nervously until the Fed comes to the rescue next month…or President Trump does something else to stir up fears. In other words, this looks like a buying opportunity.

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