The Federal Open Market Committee (FOMC) meets this week. The committee will make an announcement on interest rates on Wednesday afternoon.

Gold stocks tend to be quite volatile right after FOMC announcements. So, the most important question we have to answer this week is…

Should we buy gold stocks right in front of the FOMC announcement?

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The last time we looked at the gold sector, the VanEck Vectors Gold Miners Fund (GDX) was bumping into resistance near its February high. The fund was up 18% in just a couple of months, and it was overheating. So, I suggested trimming some profits on gold stocks.

Since then, the gold sector has cooled off. GDX is down a little more than 7%. Now, it’s sitting on a support line.

So, let’s take a look at the chart and see if GDX is worth buying ahead of tomorrow’s FOMC announcement…

GDX is sitting on the support line of its June high. This is a logical spot at which traders can look for at least a short-term bounce. There’s additional support just below at the 50-day moving average line – which is at $23.17 and rising.

The problem is that the technical momentum indicators, like the MACD and the RSI, are only in neutral territory. Any bounce in GDX from here is going to quickly push the technical indicators back up to overbought levels – and that will keep a lid on any potential bounce.

We’d have a lower-risk setup for a buying opportunity if the MACD was below the zero line, and if the RSI was under 30. In that situation, GDX would have plenty of energy with which to fuel a strong bounce.

In the current situation, maybe GDX can bounce back up towards its 9-day exponential moving average at about $24.32. But, we just don’t yet have the sort of setup that’s likely to fuel a rally much above that level.

Personally, after selling out of most of my gold stock positions earlier this month, I am anxious to get back into the sector. But it still looks to me like the sector needs to work a bit lower – or at least chop around for a while – before we get the sort of conditions that can fuel a more sustainable rally.

GDX is sitting on support. And the FOMC announcement may indeed provide a catalyst for a quick bounce. But any bounce from here is likely to be short-lived and to fade quickly.

I’m going to stay on the sidelines a little longer.

Best regards and good trading,

Jeff Clark

P.S. How do you plan on playing tomorrow’s FOMC announcement? Send me your thoughts, questions, and suggestions right here

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