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Gold Price Holds Near June High Ahead of Fed Chairman Powell Testimony

Gold Price Holds Near June High Ahead of Fed Chairman Powell Testimony

2020-06-15 06:00:00
David Song, Strategist
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Gold Price Talking Points

The price of gold trades near the monthly high ($1746) as Federal Reserve Chairman Jerome Powell prepares to testify in front of Congress, 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 Holds Near June High Ahead of Fed Chairman Powell Testimony

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).

However, bullion appears to be stuck in a narrow range following the reaction to the Federal Open Market Committee (FOMC) interest rate decision, and it remains to be seen if Chairman Powell will reveal anything new in front of US lawmakers as Fed officials pledge to “evaluate our monetary policy stance and communications as more information about the trajectory of the economy becomes available.

Chairman Powell may strike a less dovish tone as the update to the Summary of Economic Projections (SEP) show “a general expectation of an economic recovery beginning in the second half of this year,” and it seems as though the FOMC is in no rush to deploy more non-standard measures after expanding the scope of the Main Street Lending Programto allow more small and medium-sized businesses to be able to receive support.

Image of Federal Reserve balance sheet

Source: FOMC

In turn, Chairman Powell may tame speculation for a yield-curve control program as “whether such an approach would usefully complement our main tools remains an open question,” and the central bank head may emphasize that “when the time comes, after the crisis has passed, we will put these emergency tools back in the toolbox” as the balance sheet climbs above $7.1 trillion in June.

Looking ahead, the FOMC may alter the forward guidance at the next interest rate decision on July 29 as “some indicators suggest a stabilization or even a modest rebound in some segments of the economy,” but the low interest rate environment along with the ballooning central bank balance sheets may continue to act as a backstop for the price of goldas marketparticipants look for an alternative to fiat-currencies.

With that said, the semi-annual Fed testimony may generate a similar reaction to the FOMC interest rate decision, 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 has pushed the price of gold towards the monthly high ($1746), but need a break/close above the Fibonacci overlap around $1733 (78.6% retracement) to $1743 (23.6% expansion) to open up the $1754 (261.8% expansion) region.
  • 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

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