Gold Price Talking Points
The price of gold continues to reflect an inverse relationship with the US Dollar, with the precious metal giving back the advance from earlier this week while the Greenback appreciates against most its major counterparts, and bullion may struggle to retain the rebound from the September low ($1849) as the Relative Strength Index (RSI) continues to track the downward trend carried over from August.
Gold Price Rebound Unravels as Trump Seeks Post-Election Stimulus Bill
The price of gold pulls back from a fresh weekly high ($1921) as developments coming out of the US drag on investor confidence, and swings in risk appetite may continue to influence the precious metal as President Donald Trump tweets that “immediately after I win, we will pass a major Stimulus Bill.”
Further delays in passing another round of US fiscal stimulus may continue to weigh on gold asthe precious metal fails to exhibit the bullish trend from earlier this year and no longer trades to fresh yearly highs during every single month in 2020, but the deadlock in Congress may put pressure on the Federal Reserve to further support the US economy as “several participants suggested that additional accommodation could be required.”
However, the Federal Open Market Committee (FOMC) Minutes may spark a limited market reaction as the update to the Summary of Economic Projections (SEP) showed the longer run interest rate forecast unchanged from the June meeting, and the transcript may indicate more of the same for the next interest rate decision on November 5 as the central bank vows to “increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace.”
The wait-and-see approach may continue to sap bets for additional monetary stimulus as the Fed’s balance sheet narrows to $7.056 trillion from $7.093 trillion in the week of September 23, and it seems as though the FOMC will rely on its current tools to support the US economy as most officials judged that “yield caps and targets would likely provide only modest benefits in the current environment.”
Nevertheless, the FOMC may stick to a dovish forward guidance as Chairman Jerome Powell insists that the central bank remains “committed to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible,” and key market trends may persist throughout the remainder of the year as the net-long US Dollar bias resurfaces in October.
The IG Client Sentiment report continues to show the crowding behavior from earlier this week as retail traders are net-long USD/CHF, USD/CAD and USD/JPY, while the crowd is net-short GBP/USD, AUD/USD, EUR/USD, and NZD/USD.
The net-long US Dollar bias suggests key market themes resulting from the COVID-19 pandemic will persist as the low interest environment along with the ballooning central bank balance sheets heighten the appeal of gold as an alternative to fiat-currencies, and it remains to be seen if the correction from the record high ($2075) will turn out to be a material change in market behavior or an exhaustion of the bullish trend as President Trump tweets “the Stock Market is getting ready to break its all time high.”
With that said, the price of gold may continue to consolidate ahead of the FOMC Minutes as risk appetite abates, and the precious metal may struggle to retain the rebound from the September low ($1849) as long as the Relative Strength Index (RSI) continues to track the downward trend carried over from August.
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Gold Price Daily Chart
Source: Trading View
- The price of gold pushed to fresh yearly highs throughout the first half 2020, with the bullish price action also taking shape in August as the precious metal tagged a new record high ($2075).
- However, the bullish behavior failed to materialize in September as the price of gold traded below the 50-Day SMA ($1941) for the first time since June, with developments in the Relative Strength Index (RSI) negating the wedge/triangle formation established in August as the oscillator slipped to its lowest level since March.
- The decline from theyearly high ($2075) may turn out to be a change in trend as the RSI continues to track the downward trend carried over from August, but the indicator may show the bearish momentum abating if it clears trendline resistance following the failed attempt to push into oversold territory.
- Until then, the price of gold may consolidate amid the string of failed attempts to break/close above the $1907 (100% expansion) to $1920 (161.8% expansion) region, with recent price action bringing the Fibonacci overlap around $1847 (100% expansion) to $1857 (61.8% expansion) back on the radar as it lines up with the September low ($1849).
--- Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong
