Gold Sees Relief Rally Amid Rate Hike Frenzy

The gold market may be on the verge of a relief rally due to an impending Fed rate hike, but this could be followed by a drop in prices. According to Stewart Thomson, President of Graceland Investment Management, the current situation is different from previous hikes, with debt having skyrocketed and the Fed looking to use Quantitative Tightening (QT) to shrink its balance sheet.

Thomson notes that while gold may see a relief rally against fiat, a 'final' low could remain elusive for some time. The bears are currently in control of the short-term market, with oil and gold having diverged and forming a head-and-shoulders top on the chart.

Looking at the daily chart, Thomson suggests focusing on buy zones of significance rather than trying to call a 'final low' or 'new bear market'. He stresses that it's essential to stress-test portfolio allocation for the gold price going to various buy and sell zones ahead of time.

In terms of specific targets, Thomson sees potential for a breakout in GDX to around $170, with a pullback to about $85 making this more likely. He also notes that at 7% interest rates, the government's annual financing cost would be $3.5 trillion, and its interest on debt could rise to 70% of revenues.