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Looking for Clues Before the Fed Minutes

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What impact could the Fed minutes have on further prices of gold and the entire precious metal sector?

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Without a doubt, markets are waiting for the release of minutes from the Fed's July policy meeting for clues on the timing of stimulus tapering. The US central bank has said that it would begin scaling back its $85 billion in monthly bond purchases this year if the economy recovered as expected. But Fed officials are not in agreement on whether or not they should cut back from September on, which is what the markets are expecting.

Speculation that the US central bank is poised to begin tapering its stimulus as early as September is generally positive for the dollar and negative for precious metals. What impact could the Fed minutes have on further prices of gold and the entire precious metal sector?

Let's see what the markets think.

First, let's take a look at the US Dollar Index chart and the copper chart to see if there's anything on the horizon that could drive gold prices higher or lower in the near future (charts courtesy of http://stockcharts.com).



In my essay on gold and the dollar on August 9, I wrote:

The recent declines took the index to the medium-term support line (currently close to the 81 level). Keep in mind that this strong support line stopped the decline in June (it was not even reached) and encouraged buyers to act, which resulted in a sharp rally in the following days.

As you see on the weekly chart, we saw a similar situation the previous week. The dollar jumped from the medium-term support line and climbed up above the 50-week moving average. However, this improvement didn't last long and the USD Index declined once again in the recent days. Despite this downward movement, the previously mentioned medium-term support line stopped the decline and the dollar remains above it.

From this perspective, the medium-term uptrend is not threatened, and the situation remains bullish. Therefore we can expect the dollar to strengthen further in the coming weeks. It seems that it will rally sooner rather than later, fueling declines in the precious metals market.
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