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Gold Price Forecast: Rebound in Bullion Generates RSI Buy Signal

Gold Price Forecast: Rebound in Bullion Generates RSI Buy Signal

David Song, Strategist

Gold Price Talking Points

The price of gold attempts to retrace the sharp decline from the start of the week even though longer-dated US Treasury yields come under pressure, and the precious metal may stage a larger recovery over the coming days as the Relative Strength Index (RSI) offers a textbook buy signal.


Gold Price Forecast: Rebound in Bullion Generates RSI Buy Signal

The price of gold appears to be unfazed by the stickiness in the US Consumer Price Index (CPI) as the headline reading holds steady at 5.4% for the second month, and it seems as though bullion will move to the beat of its own drum ahead of the Kansas City Fed Economic Symposium scheduled for August 26 – 28 as it reverses course ahead of the March low ($1677).

Image of DailyFX Economic Calendar for US

Nevertheless, the slowdown in the core CPI may reinforce the Fed’s expectations for a transitory rise in inflation as the reading narrows to 4.3% from 4.5% in June, and signs of easing price growth may dampen the appeal of gold as a growing number of Federal Reserve officials show a greater willingness to switch gears.

In turn, speculation for a looming Fed exit strategy may keep the price of gold within the confines of a downward trend a ‘death cross’ formation takes shape in August, with the negative slope in both the 50-Day ($1809) and 200-Day ($1815) SMAs offering a bearish outlook as the double-bottom formation from earlier this year unravels.

With that said, the rebound from the monthly low ($1682) may turn out to be a correction in the broader trend rather than a change in market behavior, but the recent developments in the Relative Strength Index (RSI) indicate a larger advance in the price of gold as the oscillator bounces back from oversold territory to offer a textbook buy signal.

Gold Price Daily Chart

Image of Gold price daily chart

Source: Trading View

  • Keep in mind, a double-bottom emerged in March 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 ($1818) for the first time since February.
  • At the same time, the Relative Strength Index (RSI) pushed into overbought territory for the first time since July 2020 as the price of gold appeared to be on track to test the January high ($1959), but the double-bottom formation seems to have run its course as the RSI no longer tracks the upward trend from earlier this year.
  • The negative slopes in both the 50-Day ($1809) and 200-Day ($1815) SMAs indicate that the broader trend for bullion remains tilted to the downside, with a ‘death cross’ formation taking shape in August as the RSI pushed into oversold territory.
  • However, lack of momentum to test the March low ($1677) has generated a textbook buy signal in the RSI as the oscillator climbs back above 30, with a move above the Fibonacci overlap around $1743 (23.6% expansion) to $1763 (50% retracement) bringing the $1786 (38.2% expansion) region back on the radar.
  • Next area of interest comes in around $1816 (61.8% expansion) to $1822 (50% expansion), which lines up with the 200-Day SMA ($1815), followed by the $1837 (38.2% retracement) to $1847 (100% expansion) region.
  • Need a break of the March low ($1677) to open up the $1670 (50% expansion) region, with the next area of interest coming in around $1648 (50% expansion) to $1655 (61.8% 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.