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Gold Price Outlook Mired by Bearish RSI Signal

Gold Price Outlook Mired by Bearish RSI Signal

David Song,
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Gold Price Talking Points

The price of gold gives back the bullish reaction to the weaker-than-expected US Non-Farm Payrolls (NFP) report, with the precious metal at risk of facing a larger pullback as the Relative Strength Index (RSI) snaps the upward trend from earlier this year.

Gold Price Outlook Mired by Bearish RSI Signal

Gold prices have slipped to a fresh monthly-low ($1503) even though the 130K NFP print puts pressure on the Federal Reserve to insulate the US economy, and the price for bullion may continue to consolidate ahead of the next interest rate decision on September 18 as Chairman Jerome Powell insists that the economic outlook remains “favorable.”

Recent remarks from Chairman Powell indicates the Federal Open Market Committee (FOMC) is in no rush to reverse the four rate hikes from 2018 as the economy is “in a good place,” and it remains to be seen if the Fed will respond to the shift in US trade policy as the central bank head pledges to “act as appropriate to sustain this expansion.”

With that said, the US-China trade war may push a growing number of Fed officials to change their tune as it dampens the outlook for global growth, and the FOMC come under increased pressure to implement a rate easing cycle as President Donald Trump argues that the central bank was “way too early to raise, and way too late to cut.”

Image of Fed Fund futures

Keep in mind, Fed Fund futures continue to highlight overwhelming expectations for back-to-back rate cuts, but little signs of a looming recession may spark a growing dissent within the FOMC as Chairman Powell anticipates the US economy to growth between 2% to 2.5% in 2019.

In turn, the threat of a policy error may encourage market participants to hedge against fiat currencies, and falling US Treasury yields along with the inverting yield curve are likely to keep gold prices afloat as there appears to be a flight to safety.

However, recent developments in the Relative Strength Index (RSI) warn of a larger pullback as the oscillator snaps the bullish formation from earlier this year.

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Gold Price Daily Chart

Image of gold daily chart

Source: Trading View

  • Keep in mind, the broader outlook for gold prices remain constructive as both price and the Relative Strength Index (RSI) clear the bearish trends from earlier this year.
  • Moreover, gold has broken out of a near-term holding pattern following the failed attempt to close below the $1402 (78.6% expansion) region, with gold prices trading to a fresh yearly-high ($1557) in September.
  • However, recent developments in the RSI suggests the bullish momentum will continue to abate over the coming days as the oscillator fails to preserve the upward trend carried over from April.
  • In turn, the failed attempt to close above $1554 (100% expansion) raises the risk for a larger pullback, with the recent string of lower highs and lows bringing the downside targets on the radar as the price for bullion struggles to hold above the Fibonacci overlap around $1509 (61.8% retracement) to $1517 (78.6% expansion).
  • First area of interest comes in around $1488 (61.8% expansion) followed by the $1467 (50% expansion) region.

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.

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