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Gold Price Levels to Watch Following FOMC Rate Decision

Gold Price Levels to Watch Following FOMC Rate Decision

David Song, Strategist

Gold Price Talking Points

The price of gold extends the advance from earlier this week as the Federal Reserve reiterates its commitment in “using our full range of tools to support the economy in this challenging time,” and the dovish forward guidance may keep the precious metal afloat as the central bank pledges to “increase our holdings of Treasury and agency mortgage-backed securities over coming months at least at the current pace.”

Gold Price Levels to Watch Following FOMC Rate Decision

The price of gold has traded to fresh yearly highs during every single month so far in 2020, and the precious metal may continue to exhibit a bullish behavior in June as the pullback from the yearly high ($1765) reverses ahead of the May low ($1670).

It seems as though the Federal Open Market Committee (FOMC) will retain a dovish forward guidance even though the central bank expands the scope of the Main Street Lending Program as Fed officials “are strongly committed to using our tools to do whatever we can, and for as long as it takes, to provide some relief and stability, to ensure that the recovery will be as strong as possible.”

However, it remains to be seen if the FOMC will deploy more non-standard tools in 2020 as Chairman Jerome Powelltames speculation for a negative interest rate policy (NIRP), and it seems as though the central bank is in no rush to implement a yield-curve control program as “whether such an approach would usefully complement our main tools remains an open question.”

In turn, the FOMCmay soften the dovish forward guidance at the next interest rate decision on July 29 as “market functioning has improved since the strains experienced in March,” and the central bank may carry out a wait-and-see approach over the coming months as “some indicators suggest a stabilization or even a modest rebound in some segments of the economy.”

Nevertheless, 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, and the price for bullion may continue to exhibit a bullish behavior in June as the pullback from the yearly high ($1765) fails to produce a break of the May low ($1670).

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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 ($1765).
  • The bullish behavior may persist in June as the price of gold holds above the May low ($1670), with the RSI highlighting a similar dynamic as the indicator breaks out of the negative slope from the previous month.
  • Failure to break/close below the $1676 (78.6% expansion) region may generate range bound prices for gold, but a closing price above the Fibonacci overlap around $1733 (78.6% retracement) to $1743 (23.6% expansion) opens up the $1754 (261.8% expansion) region, with the next area of interest coming in around $1786 (38.2% expansion) followed by the 2012 high ($1796).
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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.