Gold Price Talking Points
The price of gold is little changed from the start of the week as it quickly bounces back from a fresh monthly low ($1907), and current market trends may keep the precious metal afloat as the crowding behavior in the US Dollar persists in September.
Gold Price Touches 50-Day SMA for First Time Since June
The price of gold has touched the 50-Day SMA ($1912) for the first time since June as it trades within the August range, but the pullback from the record high ($2075) may prove to be an exhaustion in the bullish price action rather than a change in trend as bullion trades to fresh yearly highs during every single month so far in 2020, while the moving average continues to track the positive slope from earlier this year.
The limited reaction to the US Non-Farm Payrolls (NFP) report suggests the price of gold will continue to consolidate even though US traders come back online following the holiday weekend, and the precious metal may face range bound conditions ahead of the Federal Reserve interest rate on September 16 as the central bank prepares to release the updated Summary of Economic Projections (SEP).
It remains to be seen if the fresh forecasts will foreshadow a looming shift in the monetary policy outlook as the Federal Open Market Committee (FOMC) mulls an outcome-based approach versus a calendar-based forward guidance, but it appears as though the central bank will stick to the status quo ahead of the US election as Fed officials plan to “achieve inflation that averages 2 percent over time.”
In turn, the FOMC may continue to “increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace,” and more of the same from Chairman Jerome Powell and Co. may prop up gold prices as the Fed’s balance sheet climbs back above $7 trillion in August.
Until then, the price of gold may continue to consolidate as global equity prices come under pressure, with the NASDAQ 100 and S&P500 sitting at a precarious position, but the crowding behavior in the US Dollar may continue to coincide with the bullish behavior in gold as a bear-flag formation emerges in the DXY index.
In fact, the IG Client Sentiment report continues to show retail traders net-long USD/CHF, USD/CAD and USD/JPY, while the crowd remains net-short AUD/USD, GBP/USD, EUR/USD and NZD/USD.
With that said, the pullback from the record high ($2075) may prove to be an exhaustion in the bullish trend rather than a change in market behavior as the low interest rate environment along with the ballooning central bank balance sheets heighten the appeal of gold as an alternative to fiat-currencies, and the Relative Strength Index (RSI) may help to validate the continuation pattern established in August if the indicator bounces back from its lowest reading since June.
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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 tagged a new 2020 high ($2075).
- The price of gold cleared the previous record high 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.
- In turn, therecent sell-signalin the RSI could be indicative of a potential exhaustion in the bullish behavior rather than a change in trend as it breaks out of the downward trend established in August, and the indicator may help to validate the wedge/triangle formation if the oscillator bounces back from its lowest reading since June.
- Will keep a close eye on the RSI as it appears to have bottomed out in August, but need to see the oscillator to push towards overbought territory to indicate a bullish outlook, with a push above 70 likely to be accompanied by higher gold prices like the behavior seen in July.
- Until then, the price of gold may continue to consolidate amid the string of failed attempt to close below $1907 (100% expansion) to $1920 (161.8% expansion), but need a closing price above the Fibonacci overlap around $1971 (100% expansion) to $1985 (261.8% expansion) to bring the $2016 (38.2% expansion) to $2025 (78.6% expansion) region back on the radar.
- A break/close above the $2016 (38.2% expansion) to $2025 (78.6% expansion) region opens up the record high price ($2075), with the next area of interest coming in around $2064 (50% expansion) followed by $2092 (161.8% expansion).
--- Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong
