"In an otherwise quiet time in the markets, gold prices have been anything but tranquil immediately following this week’s Fed meeting.
Gold rallied 3.3% on Thursday, its best one-day performance in nine months, as traders reversed bearish bets on the precious metal. The rally came one day after Fed Chairwoman Janet Yellen offered a positive assessment of the economy and said interest rates would stay low for longer.
With the yellow metal up 9.3% so far this year–a rally that has outpaced the gains in stocks, bonds and oil–the question is just how much higher can gold prices keep going.
At least one market watcher is optimistic.
On Thursday, gold rallied above both its 50-day and 200-day moving averages, a positive development for chart watchers that suggests the recent gains will continue.
“If gold can hold its 200– and 50–DMAs today (and it sure looks likely to do so), the technical prospects for gold will be pretty strong,” says George Pearkes, an analyst at Bespoke Investment Group.
Many gold traders were caught off guard by the Fed. After a strong inflation reading earlier in the week, many expected the central bank to suggest it could start raising rates earlier than expected. Gold is often considered a refuge from economic uncertainty and a means of safeguarding wealth. It’s also viewed as an inflation hedge. Prices for gold, which pays no dividend, tend to weaken in times of rising interest rates, as investors seek out higher-yielding assets.
But as Ms. Yellen reiterated on Wednesday, the Fed doesn’t intend to raise short-term rates until sometime next year. She also dismissed the recent rise in inflation, labeling the data as “noisy.”
The comments forced bearish gold traders to cut their losses by purchasing the metal, brokers said, a development that played a key role in propelling Thursday’s rally. Gold for August delivery , the most actively traded contract, settled at $1,314.1 a troy ounce.
Despite the 2014 rally, gold still has a long way to go from recapturing losses incurred last year. Gold dropped 28% in 2013, its first drop in 13 years. As of Thursday, the yellow metal remains down about 30% from its record settle high of $1,888.70 reached in August 2011.
Still, this year’s rally has surprised many market watchers. And with the Fed maintaining the status quo at least for now, there’s little reason to think the rally will be halted in its tracks anytime soon".
