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Gold Price Levels to Watch Ahead of US Non-Farm Payrolls (NFP) Report

Gold Price Levels to Watch Ahead of US Non-Farm Payrolls (NFP) Report

David Song,
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Gold Price Talking Points

The price of gold trades to a fresh yearly high ($1786) as Federal Reserve Chairman Jerome Powell pledges to support the US economy“for as long as needed,” and current market conditions may keep the precious metal afloat as the central bank vows to “increase our holdings of Treasury securities and agency mortgage-backed securities over coming months at least at the current pace.”

Gold Price Levels to Watch Ahead of US Non-Farm Payrolls (NFP) Report

The price of gold has traded to fresh yearly highs during every single month so far in 2020, and the bullish behavior looks poised to persist in July as the reversal from the May low ($1670) pushes the Relative Strength Index (RSI) towards overbought territory.

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In turn, the 2012 high ($1796) is back on the radar following the break above the May high ($1765), and it remains to be seen if the Federal Open Market Committee (FOMC) Minutes will influence the near-term outlook for gold as Chairman Powell tells US lawmakers that “we entered an important new phase and have done so sooner than expected.”

The prepared remarks for Congress asserts that the FOMC is “committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible,” but it seems as though the central bank is in no rush to deploy more unconventional tools as Chairman Powell points out that “the tools that the Federal Reserve is using under its 13(3) authority are for times of emergency.”

As a result, Chairman Powell insists that “when economic and financial conditions improve, we will put these tools back in the toolbox,” and the FOMC appears to be on track to retain the current policy at the next interest rate decision on July 29 as Fed officials show little interest for a yield curve control program.

Image of DailyFX economic calendar for US

Looking ahead, the update to the US Non-Farm Payrolls (NFP) report may also encourage the FOMC to carry out a wait-and-see approach as the economy is expected to add 3 million jobs in June, and the central bank may stick to the sidelines over the coming months 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.”

Nevertheless, the recent contraction in the Federal Reserve’s balance sheet may prove to be short lived as the reduction is largely driven by a decline in liquidity swaps, and 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.

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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 persists in June as the reversal from the May low ($1670) produces a break of the monthly opening range and pushes the price of bullion to a fresh 2020 high ($1786), and the trend looks poised to persist in July as the RSI approaches overbought territory, with a break above 70 likely to be accompanied by higher gold prices as the bullish momentum gathers pace.
  • The move above the May high ($1765) brings the 2012 high ($1796) back on the radar, but need a break/close above the $1786 (38.2% expansion) region to open up the topside hurdles, with the next area of interest coming in around $1803, the November 2011 high, followed by the $1822 (50% expansion) region.
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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.