Interest rates are an important factor in the gold price forecast, so it's a good time to get an update on the yellow metal since the Sept. 17 Fed meeting pushed a rate hike down the road...
Fed Chairwoman Janet Yellen failed to give clear guidance on when rates will be raised, except to say the first increase could occur at any future meeting. And she still expects it will happen in 2015.
Interest rates have been near zero since 2008. The Fed hasn't seen the "right" conditions to justify even a minor initial rate hike.
Rates affect gold investing because gold, which offers no yield, competes with interest from bonds and dividends from stocks.
Here's what the yellow metal's behavior leading up to and right after the Fed decision tells us about where gold prices are headed next...
Gold Price Struggles to Break Out of Long Correction
At the start of 2015, gold rallied from about $1,200 to $1,300. Many investors hoped the correction dating back to 2011 might finally be over.
But that rally fizzled by mid-January, with gold giving up those gains to touch $1,150 in March.
Gold mostly went sideways until June and then weakened to just below $1,100 in July.
When markets experienced a strong correction in late August, gold kicked into gear and moved higher - then backed off once again.
Interestingly, its retest of $1,100 this time remained above that level in what now looks like a double bottom.
And while it's still too early to tell, that action may have finally marked the end of gold's long correction.
Now if we look more specifically at Friday, Sept. 11, price action in gold stocks was especially intriguing...
Gold Stocks' Big Movement Ahead of Fed News
The Market Vectors Gold Miners ETF (NYSE Arca: GDX), which is a good proxy for major gold miners and royalty companies, touched its lowest price ever of $12.62 on Sept. 11. However, in a strong intraday reversal, GDX ended up on the day to gain 0.7%, 4.75% higher than that day's low.
Let's look at how the SPDR S&P 500 ETF (NYSE Arca: SPY), gold, and gold stocks performed from Sept. 11 until the Fed made its announcement.
As the above chart shows, stocks gained about 2% over the five days leading into the Fed announcement. Gold itself was also up about 2%, but most of that came on Sept. 16 and especially on the Fed news of no rate hike.
But gold stocks rose much more strongly in advance of the Fed news. By Sept. 16, they were up 6% over 4 days.
Now let's look at the action on the day of the Fed's announcement.
As you can see from the above chart, as soon as news broke at 2 p.m. that there would be no rate hike, gold shot up from $1,118 to $1,128. Then, as Yellen spoke at the 2:30 p.m. news conference, gold gained further and continued to climb slowly but steadily through the rest of the trading session.
But the action in gold stocks was even more pronounced.
As news broke from the Fed, GDX popped 3%. GDX backed off a little as Yellen began to speak at 2:30 p.m., but it resumed its climb to close out the day with a 4% gain from its pre-2 p.m. level.
This erases any doubt that gold reacted favorably to the delay in interest rate hikes.
What's really intriguing about gold and gold stocks' reaction is how they seemed to anticipate that the Fed wouldn't hike rates at their September meeting by their gains in the four days before.
Gold Price Forecast After Fed Decision
With persistently low interest rates, gold's competition from stocks and bonds may not be that mighty anymore after all.
The Fed indicated that weakness in the global economy caused its participants to vote against a rate hike. But if that weakness persists, it could keep the Fed from any kind of significant rate increase for some time.
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And that could continue to bolster gold and gold equities and send prices higher.
After four years of correcting and forming what looks like a double bottom around the $1,100 mark, gold seems ready to resume its long-term secular bull market.
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