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Gold Price Susceptible to Bearish RSI Signal on Break of January Range

Gold Price Susceptible to Bearish RSI Signal on Break of January Range

David Song, Strategist

Gold Price Talking Points

The price of gold takes out the January low ($1803) ahead of the update to the US Non-Farm Payrolls (NFP), and the Relative Strength Index (RSI) may indicate a further decline in gold prices if the oscillator crosses below 30 and pushes into oversold territory.

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Gold Price Susceptible to Bearish RSI Signal on Break of January Range

The price of gold trades to a fresh yearly low ($1785) even though longer-dated US Treasury yields remain afloat, and the precious metal appears to be moving to the beat of its own drum after failing to exhibit the bullish price action from 2020.

It seems as though the decline from the record high ($2075) is turning out to be a shift in market behavior rather than an exhaustion in the broader trend as the low interest rate environment no longer provides a backstop for bullion, and the rebound from the November low ($1765) may continue to unravel as the price of gold snaps the January range.

Image of DailyFX economic calendar for US

It remains to be seen if the US Non-Farm Payrolls (NFP) report will influence the near-term outlook for bullion as the economy is expected to add 50K jobs in January, but the rebound in employment may keep key market themes in place as the Federal Reserve stays on track to “increase our holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month.”

In turn, the US Dollar may continue to reflect an inverse relationship with investor confidence as the Federal Open Market Committee (FOMC) retains the current course for monetary policy, and Chairman Jerome Powell and Co. may largely endorse a wait-and-see approach at the next interest rate decision on March 17 as the central bank plans to “achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time.”

At the same time, the Fed’s dovish forward guidance may keep global equity prices afloat as the Nasdaq 100 (NDX) stays inside the confines of bull channel, but the price of gold may continue to move to the beat of its own drum as the low interest rate environment along with ballooning central bank balance sheets no longer providea backstop for bullion.

With that said, the decline from the record high ($2075) may turn out to be a shift in market behavior rather than an exhaustion in the broader trend as it continues to give back the rebound from the November low ($1765), and the may indicate a further decline in gold prices if the oscillator crosses below 30 and pushes into oversold territory.

Gold Price Daily Chart

Image of Gold price daily chart

Source: Trading View

  • Keep in mind, 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 ($1854) 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 RSI dipped into oversold territory in November for the first time since 2018, and the correction from the record high ($2075) indicates a potential shift in market behavior rather than an exhaustion in the bullish trend as the price of gold continues to trade at its lowest level since July.
  • In turn, the V-shape recoverythat materialized ahead of the July low ($1758) may continue to unravel as the price of gold snaps the January range, and the RSI may indicate a further decline in gold prices if the oscillator crosses below 30 and pushes into oversold territory.
  • Still need a close below the $1786 (38.2% expansion) region to bring the Fibonacci overlap around $1743 (23.6% expansion) to $1763 (50% retracement) on the radar, with the next area of interest coming in around $1690 (61.8% retracement) to $1695 (61.8% expansion).
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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.

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