The recent Federal Reserve policy meeting ended in a somewhat neutral outcome for investors interested in gold bullion. This is because some gold bullion investors had hoped for additional monetary stimulus to be enacted. However, even though this past meeting resulted in no change, the economic situation continues to deteriorate worldwide. I believe that the data will continue to be weak, and we will shortly witness additional monetary stimulus from several of the world’s central banks, which should drive gold bullion prices higher near the end of the year.
Recent comments by Eric Rosengren, who is the Federal Reserve Bank of Boston President, will surely reignite additional expectations of monetary stimulus, as he commented that the central bank should enact open-ended quantitative easing. He also suggested the Federal Reserve should boost this monetary stimulus program by a substantial magnitude.
Obviously, this Federal Reserve Bank president and others are voicing the opinion that the current monetary stimulus policy is not enough to decrease the unemployment rate and increase the growth rate of the country. The wording that open-ended quantitative easing should be the new monetary stimulus policy initiative is quite a change for Federal Reserve standards.
This policy initiative would be quite bullish for certain markets, such as gold bullion. With the payroll data last week not being horrible, many were led to believe that Federal Reserve policy might be on hold. In the face of news that might turn the market negative, gold bullion held up quite well. I believe there is more to come.
Chart courtesy of www.StockCharts.com.
We can clearly see from the price of gold bullion that the lows in the price have been slowly moving up the last couple of months. This is a sign that there are increasingly more buyers for gold bullion than there are sellers.
There are several crucial levels for investors in gold bullion to keep an eye on. One should note the 38.2% retracement level at approximately $1,635, which has been both support and resistance for gold bullion. Naturally the 200-day moving average in gold bullion will also serve as resistance. Once these levels have been breached, the next level to watch will be $1,700, followed by a re-test of the $1,800 area. These moves will most likely coincide with news that the Federal Reserve has enacted additional monetary stimulus.
All of this depends on the size and scope of the monetary stimulus by the Federal Reserve. This policy action will most likely determine the depth of the move in gold bullion. Note these areas for support and resistance in both adding to positions and perhaps taking profits on the way. Prudent money management is a key to the long-term success of any investor.