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Gold Tests for Support as RSI Sits in Overbought Territory

Gold Tests for Support as RSI Sits in Overbought Territory

2020-01-09 06:00:00
David Song, Strategist
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Gold Price Talking Points

The price of gold holds above the monthly low ($1518) despite easing tensions between the US and Iran, and the precious metal may test for support over the coming days as the Relative Strength Index (RSI) sits in overbought territory.

Gold Tests for Support as RSI Sits in Overbought Territory

The price of gold pulls back from a six-year high as US President Donald Trump addresses the nation, with the administration planning to respond to the Iran attacks with additional sanctions rather than military action.

Efforts to deescalate the hostile situation may undermine the recent rise in the price of bullion, but the threat of war along with the ongoing shift in US trade policy may keep gold prices afloat as the Office of the United States Trade Representative (USTR) intends to combat France’s Digital Services Tax by implementing “additional duties of up to 100 percent on certain products of France.

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It seems as though the Trump administration will continue to rely on tariffs and sanctions to carry out its agenda, and the Federal Reserve as well as the European Central Bank (ECB) may come under pressure to provide monetary support amid the weakening outlook for global growth. In turn, geopolitical risks paired with speculation for lower interest may keep gold prices afloat as market participants look for an alternative to fiat-currencies.

With that said, the broader outlook for the price of gold remains constructive, with the reaction to the former-resistance zone around $1447 (38.2% expansion) to $1457 (100% expansion) helping to rule out the threat of a Head-and-Shoulders formation as the region acts as support.

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Gold Price Daily Chart

Image of gold price daily chart

Source: Trading View

  • Topside targets are on the radar for gold as it clears the 2019 high ($1557), while the Relative Strength Index (RSI) extends the bullish formation from December and sits in overbought territory.
  • Keep in mind, the last time the RSI held in overbought territory was back in September, when the price of gold climbed to $1557 (2019 high).
  • Keeping a close eye on the Fibonacci overlap around $1554 (100% expansion) to $1557 (38.2% expansion) to see if the former-resistance zone will offer support.
  • Need a close above $1591 (50% expansion) to look for a more meaningful run at the $1625 (61.8% expansion) to $1634 (78.6% retracement) area, with the next region of interest coming in around $1660 (161.8% expansion) to $1662 (261.8% expansion).
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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.

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