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This week all eyes are focused on Central Banks, namely the BOJ, RZB and time again for the Federal Reserve.
The FOMC meets this week and results come out this afternoon, and although they promised 3-4 interest rate hikes in 2016, they have yet to pull the trigger. The central bank stated in March, that they are focused on events in other markets, particularly in Europe and Asia. Although data is supportive of another interest rate increase in the U.S., concerns about contagion from weak economies have caused the Fed to shift to a policy of "gradualism". This dovish stance on the market has allowed precious metal prices to rise.
While market consensus points to no change in U.S. interest rate policy this week, central banks like to keep markets guessing when it comes to the actual meeting results. Therefore, precious metals face their next hurdle this week. A surprise rate hike would cause a rally in the dollar. A stronger dollar and increasing interest rates would likely be bearish for the precious metals sector on the short term, but certainly not the long term. We are in the camp that higher rates will be bullish for gold. Additionally, hawkish language in the statement increasing the chances of a rate hike before summer could cause a relief rally in the dollar and a downside correction in precious metals. With that said, all other trends besides short term seem poised for higher prices.
Precious metals are likely to soar on the wings of a dove or fall if attacked by a hawk when it comes to the Fed policy and statements this coming week. Be careful out there in the precious metals markets, although they are looking better than they have in years, the prospects for volatility have increased with prices and we could see some violent price action ahead. I remain bullish on the precious metals sector, but it is likely to be a bumpy road up the mountain. Precious metals have all taken a giant step forward, the Fed and dollar will tell us this week if new highs are in the cards soon.
Cycles
On a short term basis, the big question is whether cycles are inverting and putting the blue cycle as a high rotation or not? The first chart shows the blue cycle high potential. If this is the right rotation then prices should begin to head lower today/tomorrow. In order to negate the cycle we would need to exceed last week’s high which is at 1272. Let’s go look at the next chart.
 
Cycle with no inversion
Because prices dropped to the lows during last Friday and remain above the 50 day moving average, it is not out of the question that the blue cycle remains at the low point. Any MOVE BELOW 1217-1222 will confirm we are going to move lower into the May 7th timeframe. The bottom line is that cycles are reflecting the markets indecision and choppy pattern. From a pattern perspective, a case can be made that gold is currently in an A-B-C corrective pattern, and that the C wave portion is going to play out. That would target the 1172-1192 area if that pattern observation is correct.
In summary, gold remains in a trading range. Odds favor that it should make its move one way or the other after the FOMC meeting today.
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