Connecting the Dots, How Market Players Interpreted Yesterday’s FOMC Meeting


What originally drew me to technical analysis was the purity of mathematics. Using mathematics in technical analysis to forecast market sentiment, while not always correct, is a very black and white process.
A technical formula can indicate whether a market is oversold or overbought, and while it cannot predict a reversal, the information derived will still have the same meaning. In technical indicators such as the RSI (Relative Strength Index), or Stochastics have a set and precise number that can indicate whether a market is oversold or overbought.
It is well accepted that fundamental events cause changes in market sentiment. These changes in sentiment have an impact on the price of a stock or commodity. However, how changes in market sentiment affect market prices cannot be seen in black or white due to the human element. Simply put, it is difficult to predict how investors will react to fundamental events.
This is clearly seen in the way market participants reacted to information released yesterday by the Federal Reserve in a written statement and press conference by President Jerome Powell.
Ahead of this week’s FOMC meeting, Bloomberg polled 31 economists. Their predictions were correct. Collectively, economists have come to the following conclusion; “The Federal Reserve could keep interest rates close to zero for three years or more, and its balance sheet will exceed $ 10 trillion as policymakers seek to revive the US economy after the recession.”
Economic analysts have been 100% correct in their predictions on interest rates. The Federal Reserve has maintained and recognized its commitment to keep interest rates near zero for an extended period. However, the reaction of market participants to drastically lowering the prices of gold and silver was the opposite of what one would expect.
Gold and silver traded lower that day, with gold futures being the most active December contract losing around $ 19 and spot gold falling around $ 15. These losses were slightly offset by the weakness of the dollar which lost -0.33%.According to an article written by Myra P. Saefong and Mark DeCambre in MarketWatch, “While this scenario may prove to be optimistic for gold over the long term, some experts have said that investors will sell gold because the movements of the Fed were not more overt. dovish by proposing new policy measures, deflating some of the enthusiasm for short-term bullion ownership. “

This article also quoted Craig Erlam, senior market analyst in Oanda, as saying: “The yellow metal rallied around the Fed meeting and these positions quickly unfolded as it became clear that the bazooka was not making an appearance. . The Fed has probably lived up to expectations, but all you get is a healthy dose of profit taking. “
While the explanations listed above are certainly part of why we’ve seen gold and silver prices drop, it doesn’t fully explain why any fundamental news that should have been interpreted as extremely bullish. caused a reversal in the prices of precious metals.
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Wishing you, as always, good trading and good health,

Warning: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. This is not a solicitation to effect an exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept any guilt for any loss and / or damage resulting from the use of this publication.


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