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The widely anticipated September Fed rate hike is now behind us.
And the market's reaction, at least so far, has been right out of the textbook.
The dollar is up, and gold prices are down.
But we know what happens next...
Gold prices will start to rally.
The dollar is still showing signs of having peaked, and gold continues to suggest it's building a base before rallying.
As it turns out, speculators have their biggest futures bets against gold in 17 years. The last time levels were similar was in 2001, and that's when gold rallied by almost 300% in just over 24 months.
There's no guarantee we're at an interim bottom, but the signs are pointing toward those odds.
Fed Rate Hikes Are Good for Gold Prices
The first half of last week brought more gold consolidation with the yellow metal moving within a tight $9 range.
The gold price action was all at the back end of the week, which is no surprise, given participants were waiting for confirmation of the Fed rate hike.
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They got it. As expected, gold prices dropped at the expense of the dollar's gain.
Here's what the U.S Dollar Index (DXY) did over the last five trading days...
Little real gains came on Wednesday (Sept. 26) after the Fed hike and press release. Gold prices ended at $1,194, which was the bottom of its recent trading range.
But on Thursday (Sept. 27), the euro dropped, pushing the DXY higher as concern over a possible delay for Italy's budget proposal weighed on the currency. The dollar soared, taking the DXY to 95.3 by mid-morning, a 130-basis-point gain from Tuesday's (Sept. 25) low.
Gold prices were beaten down on Thursday in the wake of euro weakness and a somewhat hawkish outlook from the Fed that rate hikes would continue into 2020.
But traders took dollar profits on Friday (Sept. 28) as the rate hike euphoria wore off. That pushed the DXY back to 95.10 by mid-afternoon, and gold rallied by $10 from $1,183 to $1,193 through the late morning and into the close.
Now, the textbook response from here is to see the start of the next gold price rally.
Here's why - and how high you can expect gold prices to climb to...
My October Gold Price Forecast
About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.