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Gold Tags Fresh Record High Price as Extreme RSI Reading Persists

Gold Tags Fresh Record High Price as Extreme RSI Reading Persists

David Song, Strategist

Gold Price Talking Points

The price of gold tags a fresh record high ($1988) on the first day of trade for August, and the extreme reading in the Relative Strength Index (RSI) may continue to be accompanied by higher gold prices like the behavior seen earlier this year.

Gold Tags Fresh Record High Price as Extreme RSI Reading Persists

The price of goldcontinues to trade to fresh yearly highs during every single month so far in 2020, and it remains to be seen if/how the precious metal will respond to the psychologically important $2000 mark as the bullish price action coincides with the crowding behavior in the US Dollar.

Nevertheless, it seems as though current market conditions will keep gold prices afloat as the Federal Reserve remains on track to “increase its holdings of Treasury securities and agency MBS (Mortgage-Backed Security) and agency CMBS (Commercial Mortgage-Backed Security) at least at the current pace, and thedepreciation in the US Dollar may heighten the appeal of gold as the DXY indexplummets for sixth consecutive weeks.

In turn, the bullish momentum appears to be carrying into August as the RSI holds above 70, while the net-long US Dollar bias looks poised to persist as the IG Client Sentiment report continues to show retail traders net-long USD/CHF, USD/CAD and USDJPY, while the crowd remains net-short AUD/USD, NZD/USD, EUR/USD and GBP/USD.

Image of IG Client Sentiment

With that said, the extreme reading in the RSIalong with the crowding behavior in the US Dollar may push bullion towards the $2000 mark, 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 gold as market participants 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 technical outlook for the price of gold remains constructive as it trades to fresh yearly highs during every single month so far in 2020, with the bullish behavior also taking shape in August as precious metal tags a new 2020 high ($1988).
  • The price of gold cleared the previous record high price recorded in September 2011 ($1921) even though the Relative Strength Index (RSI) failed to retain the upward from June, but the indicator registered a new extreme reading (88) for 2020 as the oscillator pushed into overbought territory for the third time this year.
  • The extreme reading in the RSI is likely to be accompanied by higher gold prices amid the price action seen in February, and the bullish behavior may persist as long as the indicator holds above 70.
  • As a result, the psychologically important $2000 mark sits on the radar, and a break/close above the Fibonacci overlap around $1971 (100% expansion) to $1985 (261.8% expansion) may push the price of gold towards the $2024 (78.6% expansion) region as the RSI sits in overbought territory.
  • However, lack of momentum to close above the $1971 (100% expansion) to $1985 (261.8% expansion) region may spur a move towards the overlap around $1907 (78.6% expansion) to $1920 (161.8%), and the RSI may help to validate when the price of gold has hit resistance once the indicator flashes a textbook sell signal and slips below 70.

--- 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.