Gold Break Out Or Break Down?

The FOMC decision is tomorrow.

We will be on alert to see if there is any material impact on the price of gold.

As long time readers know, we are bullish gold in the longer time frame, but acknowledge that pull backs are part of a normal, healthy market.

So far the pattern in the shiny metal remains constructive as a price consolidation has lead to a tight configuration of the major moving averages as shown below.

To date, it is not clear if this quasi pennant pattern will break to the upside or downside.  Rate hike talk could certainly pop the balloon in the short term.  Furthermore, gold seasonality is due to turn negative later in May and commercial net short positions are quite high.

Conversely, gold has been quite resilient despite a strong stock market rally in the S&P 500 and Dow.

As many readers know, we consider gold to be a thermometer of the health of the financial system.  A rising gold price suggests the financial system has a fever or something worse.

Upside targets in the event of a breakout would be the $1300 to $1310 region.

Downside targets in the event of hawkish rhetoric from the FOMC could range from 1190s down to perhaps 1165.

Let's see what happens tomorrow and Thursday.