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Gold Price Rebound Vulnerable to Upbeat US Economic Data

Gold Price Rebound Vulnerable to Upbeat US Economic Data

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Gold Price Talking Points

The recent rebound in gold appears to have stalled going into the end of May, with the price of bullion at risk of facing range-bound conditions as the U.S. economy is anticipated to show little to no signs of an imminent recession.

Gold Price Rebound Vulnerable to Upbeat US Economic Data

Gold prices may continue to consolidate following the failed attempt to test the monthly-low ($1266), but fresh developments coming out of the U.S. may drag on bullion if the data prints encourage the Federal Reserve to retain a wait-and-see approach for monetary policy.

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An uptick in the U.S. Consumer Confidence survey along with signs of sticky price growth should keep the Federal Open Market Committee (FOMC) on the sidelines as the ‘information received since the Committee met in March indicated that the labor market remained strong and that economic activity had risen at a solid rate.’

It seems as though the FOMC is in no rush to alter the forward guidance for monetary policy as ‘many uncertainties affecting the U.S. and global economic outlooks had receded,’ and it remains to be seen if Chairman Jerome Powell & Co. will continue to project a longer-run interest rate of 2.50% to 2.75% at the next interest rate decision on June 19 as Fed officials are slated to update the Summary of Economic Projections (SEP).

Image of Fed summary of economic projections

With that said, the FOMC may continue to insist that ‘if the economy evolved as they expected, the Committee would likely need to firm the stance of monetary policy to sustain the economic expansion and keep inflation at levels consistent with the Committee's objective,’ and more of the same from Fed officials may produce headwinds for gold as it dampens speculation for a change in regime.

Keep in mind, there appears to be a broader shift in market behavior as the price for bullion snaps the opening range for 2019, and the precious metal remains at risk of giving back the advance from the 2018-low ($1160) as a head-and-shoulders formation remains in play.

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Gold Price Daily Chart

Image of gold daily chart
  • The broader outlook for gold remains mired by the head-and-shoulders formation amid the break of neckline support, with the Relative Strength Index (RSI) highlighting a similar dynamic as it tracks the bearish trends from earlier this year.
  • More recently, the RSI has snapped the upward trend carried over from the previous month, but the lack of momentum to test the May-low ($1266) may open up the monthly range.
  • Need a break/close above $1288 (23.6% expansion) to bring the Fibonacci overlap around $1298 (23.6% retracement) to $1302 (50% retracement) on the radar, which largely lines up with the May-high ($1303).
  • However, a move back below the $1279 (38.2% retracement) pivot opens up the $1260 (23.6% expansion) region, with the next area of interest coming in around $1249 (50% retracement) to $1250 (38.2% retracement).

For more in-depth analysis, check out the 2Q 2019 Forecast for Gold

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.