The Fed statement that it won't be raising rates again this year had a dramatic effect on both the dollar and the precious metals sector. The dollar had been struggling to make further progress for some time and the Fed statement kicked the crutches out from under it, and it broke sharply lower, as we can see on its latest 1-year chart below. It broke below its 200-day moving average, the 1st time it has been below it for almost a year, and it also broke it down below its uptrend. This was a development made all the more serious and decisive by the fact that it is currently tightly bunched with its moving averages, which means that it is at a key inflexion point—it could have broken either way, but the Fed has decided its direction with its stated policy not to raise rates this year.
The dramatic impact on the dollar of the Fed's statement is made clear by the 1-day chart for dollar proxy UUP shown below. The Fed spoke at 2 pm, and almost immediately the dollar cratered.
Action in gold proxy GLD, which had looked shakier earlier in the day, was positive, with it advancing to close near to its highs, and it looks like it is starting another upleg within the large parallel uptrend shown.
Precious metal stocks were set up to tumble in the event that the Fed was hawkish on rates, with a potential Head-and-Shoulders top evident on the GDX chart, but the Fed's weak and accommodating stance ripped the rug out from under the dollar, which was, of course, great news for the precious metals sector, which is why GDX closed with a prominent bullish candle on its chart, after testing the support of its trendline earlier in the day.
The conclusion is that the dollar looks set to tip into a serious decline, which means we should see a strong upleg in the precious metals sector and in commodities generally. This will likely result in the long awaited gold breakout above $1,400.
In closing I want to bring your attention to Vista Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX), which has always been something of an "index slave," i.e., when the sector goes up it goes up. It is looking well placed to advance anew here having reacted back near to its rising 50-day moving average and unwound its earlier overbought condition.
Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years' experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.
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Charts provided by the author.
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The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.
