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David Becker
Gold ingots and coins

Gold prices whipsawed during the Tuesday trading session. Volatility was generated by Fed Chair Jerome Powell announced that the Federal Reserve will soon increase its purchases of short-term Treasury securities in order to reduce the strains experience in September that rattled the short-term lending market. Additionally, the State Department announced that it was putting visa restrictions, certain Chinese persons, ahead of this week’s meeting between US and Chinese negotiators.

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Technical Analysis

Gold prices rallied on Tuesday as riskier assets traded under pressure. Prices rebounded back through short term support which is now resistance near the 10-day moving average which is now seen as short term resistance at 1,496. Additional support is seen near an upward sloping trend line that comes in near 1,468. Short term momentum has whipsawed and now points to consolidation. Medium-term momentum is beginning to consolidate. The MACD histogram is printing near the zero index line with a flat trajectory which points to consolidation, but also a potential crossover buy signal.

Fed Chair Powell said that the Fed would begin to buy bonds and try to avoid any recurrence of the unexpected strains experienced in money markets last month. Fed officials stopped shrinking the assets on its balance sheet in August but this is the first time they revealed that they would let them grow again. As a result, a crucial liability on the balance sheet, bank deposits held at the Fed, continued declining, and in recent weeks, stresses in very-short term funding markets suggested banks have grown reluctant to lend out of those reserves. The lack of liquidity could generate a blowout of the libor rate which is a warning sign that the lack of liquidity could begin to weigh on riskier assets.

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