Why gold is sighing in relief

Gold gains ground: Trading Nation

Gold is enjoying its third straight day of gains on Friday, and is up some $20 since Tuesday's settlement.

The moves comes after the Federal Reserve remained committed to maintaining an ultralow federal funds rate target in its Wednesday statement, sending the dollar lower on the week, alongside short-term yields.

Higher short-term rates are often seen as the mortal enemy of gold, for a few distinct reasons. First, gold bars throw off no yield (conversely, they are costly to store) so they become an increasingly inferior means of preserving wealth the higher that risk-free rates rise. Second, rising short-term rates are positive for the dollar, as it makes holding the greenback a more attractive proposition. And a stronger currency means that it takes fewer of those dollars to buy the same amount of gold.

Read MoreGold set for second weekly jump on Fed rate outlook, Greece

A worker arranges newly cast gold bullion bars.
Bartek Sadowski | Bloomberg | Getty Images

With the Fed leaving rates put for the time being, then, gold is sighing in relief.

However, at this point, gold is facing resistance at the $1,205.80 and $1,204.70 levels, according to a note to clients issued by Chicago-based firm iiTrader. With the yellow metal topping out at $1,204.00 on Friday morning, any further gains may be hard-won.

Additionally, the long-term fundamentals may not look too favorable.

The U.S. central bank's statement "is good for gold in the short term, but quite frankly, the long term still supports gold going down," said Gina Sanchez of Chantico Global.

"The Fed does have to raise rates at some point just for credibility purposes, so you can expect that there would be a rate hike," and that will keep gold on its recent losing streak, Sanchez said.

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