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Gold Price Rally to Persist If Bullish RSI Signal Takes Shape

Gold Price Rally to Persist If Bullish RSI Signal Takes Shape

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Gold Price Talking Points

Gold prices appear to be making a run at the yearly-high ($1557) as the precious metal breaks out of the range-bound price action from the previous week, and the Relative Strength Index (RSI) may offer a bullish signal should the oscillator snap the downward trend from earlier this year.

Gold Price Rally to Persist If Bullish RSI Signal Takes Shape

The price of gold carves a fresh series of higher highs and lows following the Federal Open Market Committee (FOMC) interest rate decision, and recent comments from Fed officials suggest there will be a growing rift at the central bank as a number of them project a lower trajectory for the benchmark interest rate.

Fresh remarks from St. Louis Fed President James Bullard suggest the central bank will continue to insulate the US economy as the 2019-voting member insists that “the FOMC may choose to provide additional accommodation going forward.”

It seems as though the FOMC will increase its efforts to “help keep the US economy strong” as Mr. Bullard warns that “recent developments in global trade negotiations suggest that it will be difficult to reach a stable global trade regime over the forecast horizon.” As a result, Fed officials may continue to endorse a dovish forward guidance for monetary policy as the Trump administration and China struggle to reach an agreement.

Image of Fed Fund futures

With that said, Fed Fund futures largely reflect a 50/50 chance for another rate cut in October as the updates to the Summary of Economic Projections (SEP) show the benchmark interest rate around 1.50% to 1.75% ahead of 2020, but the divide within the FOMC may push market participants to hedge against fiat currencies amid the threat of a policy error.

In turn, falling interest rates along with the inverting US yield curve are likely to keep gold prices afloat, and the precious metal appears to be making a run at the yearly-high ($1557) as it breaks out of the range-bound price action from the previous week.

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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 warns of a near-term correction in gold as the oscillator continues to track the bearish formation from June, with recent price action raising the risk for a head-and-shoulders top.
  • As a result, need the RSI to break out of the bearish formation to negate the risk for a head-and-shoulders topping pattern.
  • Nevertheless, the move back above the $1509 (61.8% retracement) to $1517 (78.6% expansion) region may spur a run at the yearly-high ($1557), but need a break/close above the $1554 (100% expansion) hurdle to open up the $1570 (161.8% expansion) area.

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.