Gold Prices Risk Fresh 2018 Lows as RSI Flirts with Oversold Territory

Gold Talking Points

The recent rebound in gold continues to unravel, with prices for bullion at risk for fresh yearly lows as the bearish momentum from earlier this year appears to be reasserting itself.

Gold Prices Risk Fresh 2018 Lows as RSI Flirts with Oversold Territory

The price for bullion quickly approaches the July-low ($1211) following the Federal Reserve interest rate decision, and the weakness may persist over the near-term as Chairman Jerome Powell & Co. appear to be on track to deliver a rate-hike at the next quarterly meeting in September.

Moreover, Fed Fund Futures suggest market participants are gearing up for four rate-hikes in 2018 as market participants anticipate a move in September and December, and the FOMC’s hiking-cycle may continue to dampen the appeal of gold as the ‘Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.’

At the same time, retail sentiment remains stretched as the IG Client Sentiment Report shows 87.3% of traders are still net-long gold even as the precious metal approaches the yearly low. The number of traders net-long is 4.7% higher than yesterday and 2.6% higher from last week, while the number of traders net-short is 1.4% higher than yesterday and 12.2% lower from last week.

The persistent skew in retail positioning offers a contrarian view to crowd sentiment especially as both price and the Relative Strength Index (RSI) preserve the bearish trends from earlier this year, and the precious metal may now make a run at the July 2017-low ($1207) as the momentum indicator flirts with oversold territory.

Gold Daily Chart

• Gold prices may trade to fresh 2018 lows as the RSI appears to be on the cusp of flashing a bearish trigger, with a break of trendline support paired with a break below 30 raising the risk for a further decline in bullion as the downside momentum gathers pace.
• Still need a break/close below the Fibonacci overlap around $1210 (50% retracement) to $1219 (61.8% retracement) to open up the $1198 (38.2% expansion) hurdle, with the next region of interest coming in around $1172 (61.8% retracement) to $1177 (78.6% retracement).

For more in-depth analysis, check out the Q3 Forecast for Gold

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.