Gold prices are set to jump, this pattern suggests – MarketWatch

Investors had all weekend to chew on what the holders of American interest rates had to say last week and what it means for the market in what is a historically tough stretch.

Macro Man, an anonymous blogger who consistently churns out the goods, wrote of the “absurdity” of the Fed’s latest meeting and why the central bank’s credibility is in bad shape. As a bonus, he even wrote his thoughts in the third person, for some added gravitas.

“The next few weeks will tell the tale of how the market really views the Fed. If Macro Man’s views on the impact of Fed uncertainty are correct, then risky assets should struggle,” he said. “Policy error normally gets punished in one form or another, sooner or later. The conundrum this time around is that the punishment (lower risky asset prices) will only perpetuate the error.”

Of course, when risk assets start to fade, gold perks right up. Add in a technical signal that screams for more whipsaw trading action, and the safe havens start to look rather inviting. See both “the chart” and “the call” for some wonky reasons to be cautious.

The Northman Trader also posted a depressing assessment of where we stand now. The title pretty much told the tale: “Game Over.” He punctuated his pessimism by revisiting this tweet:

But hey, there’s this: Last week’s negative showing made for the 11th straight week of returns alternating weekly gains and losses. That’s probably not the kind of trend that makes bulls snort with excitement, but they’ll take what they can get in this environment.

Drawing some of the attention away from the Fed will be a smattering of results from companies that should give us a glimpse into how China’s woes are starting to affect companies at home.

And on we go, to what’s typically been an abysmal week for traders.

The chart

September is historically a wild month in the stock market, and if this chart is any indication, this particular one should be a real doozy. Ashraf Laidi, a London-based currency strategist, posted this chart to show a rare bullish setup for the volatility gauge

VIX, -2.47%

We’ve heard a lot about “death crosses”, but a “golden cross” in the VIX hasn’t been seen since the days of the financial crisis. So strap in, this is just one of many signs that turbulence lies ahead.

The call

Erik Swarts of the Market Anthropology blog said last week’s move by the Fed to stand pat on rates should rejuvenate gold, and he used this chart to back his view. “While we had liked the position in either scenario because we felt the dollar and real yields already reflected lofty expectation to more contemporary tightening cycles,” he said, “the news cleared the way for gold to stretch its legs in a market environment that should broadly support the reversal.”

Looking ahead, he said he expects a weakening dollar to pull real yields lower, which will light a fire under gold. You can see the relationship between yields and the inverse price of gold in this chart overlay.