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Gold Price Eyes 2012 High Again Following Break of Negative RSI Slope

Gold Price Eyes 2012 High Again Following Break of Negative RSI Slope

2020-06-01 05:00:00
David Song, Strategist
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Gold Price Talking Points

The price of gold has traded to fresh yearly highs during every single month so far in 2020, and the bullish behavior may persist in June as the Relative Strength Index (RSI) breaks out of a negative slope.

Gold Price Eyes 2012 High Again Following Break of Negative RSI Slope

The price of gold appears to have reversed course ahead of the May low ($1670) as it extends the series of higher highs and lows from the previous week, and the precious metal stage another attempt to test the 2012 high ($1796) as the Federal Reserve prepares to have the Municipal Liquidity Facility along with the Main Street Lending Program up and running in June.

Image of Federal Reserve balance sheet

Source: FOMC

The new set of non-standard measures may push the Federal Open Market Committee (FOMC) to the sidelines as the balance sheet climbs above $7 trillion in May, and the central bank may carry out a wait-and-see approach over the coming months as ChairmanJerome Powelltames speculation for a negative interest rate policy (NIRP).

It remains to be seen if the FOMC will deploy more unconventional tools over the coming months as Fed officials express mixed views regarding the US economy, and the committee may continue to endorse a dovish forward guidance at the next interest rate decision on June 10 amid the threat of a protracted recovery.

In turn, the FOMC may largely reiterate its committed in “using its full range of tools to support the U.S. economy in this challenging time,” and the low interest rate environment along with the ballooning central bank balance sheets may continue to 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, and the precious metal may stage another attempt to test the 2012 high ($1796) as the Relative Strength Index (RSI) breaks out of a bearish formation.

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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 bullish behavior may persist in June as the price of gold appears to have reversed course ahead of the May low ($1670), with the RSI highlighting a similar dynamic as the indicator breaks out of the negative slope from the previous month.
  • Need a closing price above $1754 (261.8% expansion) to open up the $1786 (38.2% expansion) region, with the 2012 high ($1796) coming up next.
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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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