Buying gold has been a popular way to trade a long-term continuation of Fed asset purchases but nervous longs are scaling out ahead of tomorrow’s decision.
The market is pricing in a high chance the Fed won’t taper until March of next year. Here’s how I’d estimate the probabilities:
- 40% March
- 25% January
- 20% later than March
- 10% December
The last one on that list is what’s in play tomorrow. The could hint that December is still on the table in a meaningful way and that would spark a broad and significant rally in the dollar and slump in gold. Alternatively, an admission of no taper this year unless there is a sharp turnaround in the economy would knock the December probability below 5% and push gold back to $1360.
Notice that those numbers don’t add up. The wild card would be a hint from the Fed that it could increase asset purchases. That would send US dollar selling into overdrive and gold soaring through $1360.
Looking at the technicals, gold is pointing to the possibility of a slide back to $1321 as it fades ahead of the 61.8% retracement.
Gold
