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Gold Price Levels to Watch Amid Failure to Test November 2012 High

Gold Price Levels to Watch Amid Failure to Test November 2012 High

2020-05-04 05:00:00
David Song, Strategist
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Gold Price Talking Points

The price of gold trades in a narrow range as governments across the US start to roll back the stay-at-home orders, and plans to gradually restart the advanced economies may drag on the precious metal as it helps to restore investor confidence.

Gold Price Levels to Watch Amid Failure to Test November 2012 High

The price of gold consolidates following the failed attempt to test the November 2012 high ($1754), but the precious metal may face a larger correction as the Reserve Bank of Australia (RBA) and Bank of England (BoE) are expected to keep interest rates on hold in May.

Major central bank may change their tune over the coming months asthe Great Lockdown appears to have passed its peak, and plans to roll back the restrictions are likely to influence monetary policy as the Federal Reserve insists that “the “timing of the resumption of growth in the U.S. economy depended on the containment measures put in place.”

The unprecedented response by monetary as well as fiscal authorities may continue to restore investor confidence as central banks venture into uncharted territory, but it remains to be seen if the efforts will jumpstart the global economy as theupdate to the US Non-Farm Payrolls (NFP) report is anticipated to show a 21.3 million decline in employment.

Little signs of a V-shaped recovery may force the Federal Open Market Committee (FOMC) to retain a dovish forward guidance throughout 2020 as Chairman Jerome Powell insists that the central bank remains “committed to using our full range of tools to support the economy in this challenging time.”

Image of Federal Reserve balance sheet

Source: Federal Reserve

In turn, the FOMC may continue to utilize its non-standard tools as the rate cuts from earlier this year pushed “the target range to its effective lower bound (ELB), and the low interest rate environment along with the Fed’s ballooning balance sheet may continue to act as a backstop for gold as marketparticipants look for an alternative to fiat-currencies.

However, the price of bullion may continue to consolidate following the string of failed attempt to test the November 2012 high ($1754), with the Relative Strength Index (RSI) highlighting a similar dynamic as a bearish formation takes shape.

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Gold Price Daily Chart

Image of gold price daily chart

Source: Trading View

  • The opening range for 2020 instilled a constructive outlook for the price of gold as the precious metal cleared the 2019 high ($1557), with the Relative Strength Index (RSI) pushing into overbought territory during the same period.
  • A similar scenario materialized in February, with the price of gold marking the monthly low ($1548) during the first full week, while the RSI broke out of the bearish formation from earlier this year to push back into overbought territory.
  • However, the monthly opening range for March as less relevant amid the pickup in volatility, with the decline from the monthly high ($1704) leading to a break of the January low ($1517).
  • Nevertheless, the reaction to the former-resistance zone around $1450 (38.2% retracement) to $1452 (100% expansion) instilled a constructive outlook for bullion especially as the RSI reversed course ahead of oversold territory and broke out of the bearish formation carried over from the previous month.
  • The break/close above $1710 (100% expansion) pushed the price of gold to a fresh yearly high ($1748), but the precious metal continues to track the range from the previous month amid the lack of momentum to test the November 2012 high ($1754).
  • The Relative Strength Index (RSI) highlights a similar dynamic as a bearish formation takes shape following the failed attempts to push into overbought territory.
  • In turn, gold may continue to consolidate in May amid the string of failed attempt to close above the Fibonacci overlap around $1733 (78.6% retracement) to $1739 (100% expansion), with the lack of momentum to hold above the $1710 (100% expansion) region bringing the $1676 (78.6% expansion) area on the radar.
  • Next area of interest comes in around $1655 (78.6% expansion) followed by the Fibonacci overlap around $1627 (61.8% expansion) to $1635 (78.6% retracement).
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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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