The announcement by the US Federal Reserve past Thursday of open-ended asset-buying shook the commodity and financial markets late Thursday and Friday. The impact of the news will likely reverberate into next week.
- Further reading: US Government unveiled open-ended steps to aid economy
Gold prices ended up on the week. The most-active December gold contract on the Comex division of the Nymex rose on Friday, settling at $1,772.70 an ounce, up 1.85% on the week. December silver fell on Friday, settling at $34.656 an ounce, but up 2.87% on the week.
The Fed is buying $40 billion a month of mortgage-backed securities and continuing with its Operation Twist program, so it will buy $85 billion in assets until the year end, at least.
Market analysts said two statements were key for precious metals: the open-ended nature of the statement, which is a change for the governmental policy, and the comments about the inflation target. That is particularly bullish for gold and many traders expect higher prices next week.
Gold is a the winner, as the opportunity cost of holding zero-yielding assets decreases with this over the longer term. At the same time, the risk of above-trend inflation grows due to the open nature of this plan….
This year’s gold price high of around $1,793, set in February, is likely the first target for bulls to storm the market. The next level is $1,802.7.
While the longer-term bullish trend for gold is intact, the yellow metal price is due for a correction. The market is sharply overbought and at the U.S. dollar index is oversold. The current uptrend could be interrupted.
In the coming week, gold traders could see some profit-taking due to the strength of the rally. A correction around the resistance area of $1,790.75-$1,802.93 could occur. Support is at $1,765.85 and $1,750.00.
Now, when the US Federal Reserve future policy is finally confirmed, gold’s upside pace may slow down. A consolidation is very much possible.
