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Gold Price Forecast: May Low on the Radar Amid Negative RSI Slope

Gold Price Forecast: May Low on the Radar Amid Negative RSI Slope

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Gold Price Talking Points

The price of gold continues to pull back from the yearly high ($1765) following the failed attempt to test the 2012 high ($1796), and the precious metal may consolidate over the remainder of the month as Relative Strength Index (RSI)establishes a negative slope.

Gold Price Forecast: May Low on the Radar Amid Negative RSI Slope

The price of gold continues to give back the advance from the May low ($1670) even though Federal Reserve officials strike a mixed outlook for the US economy, but the weakness may end up being short lived as bullion has traded to fresh yearly highs during every single month so far in 2020.

During an interview with Fox News, St. Louis Fed President James Bullard argued that “the third quarter very likely, right behind the worst quarter, will be the best quarter of all time on the growth perspective,” with the official going onto say that he expects the US unemployment rate to “be under double digits by the end of the year.”

The comments paint a more upbeat outlook compared to the recent remarks from Boston Fed President Eric Rosengren, who anticipates “double digit unemployment through the end of this year,” but the mixed views may push the FOMC to the sidelines as the central bank prepares to launch the Municipal Liquidity Facility along with the Main Street Lending Program.

In turn, Chairman Jerome Powell and Co. may carry out a wait-and-see approach over the coming months as the Fed balance sheet climbs above $7 trillion in May, but the FOMC is likely to retain a dovish forward guidance at the next interest rate decision on June 10 as the committee remains committed in “using its full range of tools to support the U.S. economy in this challenging time.”

It remains to be seen if the FOMC will deploy more unconventional tools in 2020 as Chairman Powelltames speculation for a negative interest rate policy (NIRP), but the low interest rate environment along with the ballooning central bank balance sheets may act as a backstop for goldas marketparticipants look for an alternative to fiat-currencies.

With that said, the price for gold may exhibit a bullish behavior in June as it trades to fresh yearly highs during every single month so far in 2020, but the precious metal may continue to give back the advance from the May low ($1670) as the Relative Strength Index (RSI) establishes a negative slope.

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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 from February.
  • In turn, gold cleared the March high ($1704) to tag a new yearly high ($1748) in April, with the bullish behavior also taking shape in May as the precious metal traded to a fresh 2020 high ($1764).
  • The RSI highlighted a similar dynamic as the oscillator broke out of the downward trend carried over from the previous month, but the bullish momentum has largely abated as the indicator reverses course ahead of overbought territory.
  • Will keep a close eye on the RSI as it establishes a negative slope, with the indicator registering levels not seen since March as the oscillator slips below 50.
  • The price of gold may continue to pull back from the 2020 high ($1765) as the advance from earlier this month stalls ahead of the 2012 high ($1796), with lack of momentum to hold above the Fibonacci overlap around $1733 (78.6% retracement) to $1743 (23.6% expansion) bringing the $1676 (78.6% expansion) region on the radar, which largely lines up with the May low ($1670).
  • Next area of interest comes in around $1655 (161.8% expansion) followed by the overlap around $1627 (61.8% expansion) to $1630 (23.6% 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.