The gold sector can resume its rally now that the Federal Open Market Committee (FOMC or “the Fed”) meeting is out of the way.
For whatever reasons, justified or not, gold stocks tend to behave poorly going into a Fed meeting.
Gold stock traders tend to be a bit paranoid under normal circumstances. That paranoia gets supercharged when facing a potential move by the world’s most powerful Central Bank.
This leads traders to back away from the sector in the days leading up to a meeting.
But those traders come rushing back when the Fed doesn’t do anything.
That’s the setup we’re looking at right now: The Fed didn’t do anything on Wednesday.
All the signs are pointing to a rally…
We’re entering a seasonally bullish time of the year for gold stocks. The bullish percent index for the gold sector has triggered a buy signal.
And the Fed is on the sidelines at least until its next meeting on December 13, maybe longer.
Right now, the technical condition for the gold sector is showing a potentially bullish pattern.
Look at this chart of the gold bugs index (HUI)…
This chart is forming the right shoulder of an inverted head and shoulders pattern. This bullish pattern indicates the reversal of a trend from bearish to bullish.
The “neckline” of the pattern is at $230. It’s going to take a breakout above that level to confirm a new bullish trend.
Once that happens, though, it should be a relatively straight shot up toward resistance at $260. This lines up with the previous support level from back in April.
That breakout would be a 20% rally from Wednesday’s closing price. And it could happen before the next FOMC meeting on December 13.
That might seem like an outrageous and unlikely move. But look at the chart again and notice what happened last year at about this same time.
The HUI rallied from $180 at the start of November to $238 at the start of December. That’s a 32% gain in just one month!
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The bullish conditions for gold we looked at earlier this week are still in place. And now, with the FOMC meeting out of the way, gold stocks can resume their rally. The sector could be sharply higher just one month from now.
Best regards and good trading,
Jeff Clark
READER MAILBAG
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