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Gold Price Forecast: RSI Sell Signal Takes Shape Ahead of US CPI

Gold Price Forecast: RSI Sell Signal Takes Shape Ahead of US CPI

David Song, Strategist

Gold Price Talking Points

The price of gold extends the advance following the US Non-Farm Payrolls (NFP) report as longer-dated US Treasury yields remain under pressure, but the technical outlook is clouded with mixed signals as the Relative Strength Index (RSI) falls back from overbought territory to display a textbook sell signal.

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Gold Price Forecast: RSI Sell Signal Takes Shape Ahead of US CPI

The price of gold approaches the monthly high ($1917) as the 10-Year US Treasury yield slips to a fresh monthly low (1.54%), and fresh data prints coming out of the US may continue to sway gold prices as the Federal Reserve braces for a transitory rise in inflation.

Image of DailyFX economic calendar for US

The update to the US Consumer Price Index (CPI) is anticipated to show the headline print climbing to 4.7% in May from 4.2% the month prior, while the core rate of inflation is seen widening to 3.4% from 3.0% during the same period. It remains to be seen if the Federal Reserve will respond to the CPI as Cleveland Fed President Loretta Mester states that the NFP report is “solid,” but argues that there’s “further progress to be made” during a recent interview with CNBC.

The comments from Mester suggests the Federal Open Market Committee (FOMC) is in no rush to switch gears as “there’s several factors that are affecting labor supply,” and the central bank may continue to strike a dovish forward guidance at the next interest rate decision on June 16 as “various participants noted that it would likely be some time until the economy had made substantial further progress toward the Committee's maximum-employment and price-stability goals.”

Until then, the weakness in longer-dated US yields may keep the price of gold afloat as it extends the series of higher highs and lows from the June low ($1856), but the technical outlook is clouded with mixed signals as the Relative Strength Index (RSI) falls back from overbought territory to display a textbook sell signal.

With that said, looming developments in the RSI may indicate a larger pullback in bullion should the oscillator snaps the upward trend from earlier this year, and the price of gold may reverse course ahead of the January high ($1959) if it fails to break out of the monthly opening range.

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 ($1814) 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.
  • Nevertheless, a double-bottom emerged in 2021 as the price of gold failed to test the June 2020 low ($1671), with the key reversal pattern pushing the precious metal back above the 200-Day SMA ($1841) for the first time since February.
  • The price of gold appears to be on track to test the monthly high ($1917) as it carves a series of higher highs and lows, but failure to break out of the opening range for June may generate a larger pullback in the price of gold as the RSI falls back from overbought territory and appears to be on track to threaten the upward trend from earlier this year.
  • Lack of momentum to break/close above the Fibonacci overlap around $1907 (78.6% expansion) to $1929 (23.6% expansion) may push the price of gold back towards the $1857 (61.8% expansion) region, with the next area of interest coming in around $1838 (38.2% retracement) to $1847 (100% expansion).

--- 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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