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TheStreet Open House

Gold Sets Long Term Pattern Due to Fed's Policy Move

NEW YORK ( TheStreet) -- Gold is setting up in a long term pattern, to either move higher or lower, based on the Federal Reserve's next policy move.

The chart below shows SPDR Gold Shares (GLD) forming a strong head-and-shoulder's pattern over the past year.

In May, the Fed hinted at winding down stimulus heading into next year.

The stimulus has affected gold by decreasing interest rates, which puts selling pressure on the U.S. dollar. The dollar and gold trade inversely, which means a weaker dollar puts a bid higher in gold prices.

Since that time expectations of tapering have changed sporadically, from as early as this past September all the way out into next summer.

The pattern doesn't guarantee a move to neither the up- nor downside, as patterns set up and break form frequently. However, the time of reckoning is fast approaching.

Both GDP and nonfarm payrolls data will weigh heavily on the commodity this week. If the numbers print better than expected, the fund will most likely crash towards the 123 support level as investors will price in tapering by years end.

On the other hand, if the data is unimpressive, it will justify the idea that the economy is still not ready to operate on its own. This will push expectations of tapering out into 2014 and break the pattern -- pushing gold prices towards October highs.

In both cases gold should receive an inflow of volatility by week's end, as investors will need time to digest the near-term information.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

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