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Gold Price Talking Points

Gold quickly pares the decline from earlier this week as Federal Reserve officials show a greater willingness to switch gears, and the price of bullion may exhibit a more bullish behavior over the coming days as the Relative Strength Index (RSI) pushes back towards overbought territory.

Gold Prices Eye 2019 High Following Dovish Fed Testimony

Gold looks poised to test the 2019-high ($1439) as Fed Chairman Jerome Powell strikes a dovish tone in front of Congress, and it seems as though the Federal Open Market Committee (FOMC) is on track to insulate the US economy as “many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened.

The 224K expansion in US Non-Farm Payrolls (NFP) appears to have done little to influence the monetary policy outlook as Chairman Powell insists that “there is a risk that weak inflation will be even more persistent than we currently anticipate,” and the comments suggest the central bank will continue to alter the forward guidance over the coming months as “uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.”

It remains to be seen if the Fed will reestablish a rate easing cycle as St. Louis Fed President James Bullard, a 2019-voting member on the FOMC, continues to endorse an “insurance cut,” with the official arguing that the central bank was “overly preemptive” by delivering four rate hikes in 2018.

Image of Fed Fund futures

In turn, Fed Fund futures still highlight a 100% probability for at least a 25bp rate cut on July 31, and Chairman Powell and Co. may continue to change their tune over the coming months as President Donald Trump tweets “our most difficult problem is not our competitors, it is the Federal Reserve.”

With that said, gold prices may continue to benefit from the current environment amid the threat of a policy error, and the price of bullion may exhibit a more bullish behavior over the remainder of the year as market participants look for an alternative to fiat currencies.

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Gold Price Daily Chart

Image of gold daily chart
  • The broader outlook for gold is no longer mired by a head-and-shoulders formation as both price and the Relative Strength Index (RSI) break out of the bearish trends from earlier this year.
  • Moreover, the recent pullback in bullion appears to have run its course as the Fibonacci overlap around $1380 (100% expansion) to $1385 (78.6% expansion) offers support, with the topside targets coming back on the radar as the price of gold carves a fresh series of higher highs and lows.
  • The move above the $1418 (100% expansion) to $1422 (23.6% expansion) region may spur a more meaningful run at the $1444 (161.8% expansion) to $1448 (382.% retracement) area, with the next topside hurdle coming in around $1457 (100% expansion).
  • Will keep a close eye on the RSI as it continues to track the upward trend from earlier this year, with the oscillator working its way back towards overbought territory; move above 70 raises the risk for a larger advance in gold as the bullish momentum gathers pace.

For more in-depth analysis, check out the 3Q 2019 Forecast for Gold

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.