How quickly sentiment can change in this market… in the last three days gold has had two decidedly bullish headlines come out of the US and Europe. The Wall Street Journal reported late Tuesday that the Fed is more closely approaching action in relation to QE3. The exact wording was “Amid the recent wave of disappointing economic news, conversation inside the Fed has turned more intensely toward the questions of how and when to move. Central bank officials could take new steps at their next meeting next week, July 31st and August 1st…”. This headline caused gold bulls to come out in force and the yellow metal was pushed through psychological resistance at $1,600 yesterday. Gold stopped in its tracks at a five point trendline at $1,610 but a bullish euro story overnight helped it push through this significant area.
ECB President Mario Draghi stated earlier today “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro – And believe me, it will be enough”. After succumbing to such steady liquidation over the last few months, this statement caused fear for the many shorts of the currency and an impressive short covering rally has been the result today thus far. The precious metals have naturally latched on to the move higher and gold’s short term target is a close above a Fibonacci retracement level at $1,628.