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Gold Price Forecast: Four-Day Rally Stalls Ahead of 50-Day SMA

Gold Price Forecast: Four-Day Rally Stalls Ahead of 50-Day SMA

David Song, Strategist

Gold Price Talking Points

The price of gold appears to be reversing ahead of the 50-Day SMA ($1800) as it pulls back from a fresh weekly high ($1796), and lack of momentum to climb back above the moving average may undermine the recent recovery in the precious metal as a ‘death cross’ takes shape in August.

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Gold Price Forecast: Four-Day Rally Stalls Ahead of 50-Day SMA

Bullion snaps a four-day rally even as a textbook buy signal emerged in the Relative Strength Index (RSI), and the price of gold may struggle to retain the recent series of higher highs and lows is it seems to be moving to the beat of its own drum.

The price of gold shows a limited reaction to the weaker-than-expected US Retail Sales report even as a growing number of Federal Reserve officials indicate a greater willingness to shift gears, and its seems as though the Federal Open Market Committee (FOMC) will alter the forward guidance as Boston Fed President Eric Rosengren reveals that “if we get another strong labor market report, I think that I would be support of announcing in September that we are ready to start the taper program.”

During an interview with CNBC, Rosengren, a FOMC voting-member in 2022, argues that he has “no concerns” about achieving the dual mandate for monetary policy, with the official going onto say that the quantitative easing (QE) program “is not nearly as effective now as it was, as we were coming out of the financial crisis.”

As a result, Rosengren insists that the FOMC should taper its asset-purchases “sooner rather than later,” and speculation for a looming shift in monetary policy may undermine the recent recovery in the price of gold as a ‘death cross’ takes shape in August.

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 as the 50-Day ($1800) and 200-Day ($1812) SMAs reflect a negative slope, and lack of momentum to push above the moving averages instills a bearish outlook ahead of the Kansas City Fed Economic Symposium scheduled for August 26 – 28 as Fed officials show a greater willingness to switch gears.

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 ($1812) 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 SMA ($1800) and 200-Day ($1812) 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 the move above the $1786 (38.2% expansion) region pushing the price of gold towards the 50-Day ($1800).
  • A move above the moving average opens up the $1816 (61.8% expansion) to $1822 (50% expansion) region, which lines up with the 200-Day SMA ($1812), with the net area of interest coming in around $1837 (38.2% retracement) to $1847 (100% expansion).
  • However, lack of momentum to push above the 50-Day SMA ($1800) may push the price of gold back towards the Fibonacci overlap around $1743 (23.6% expansion) to $1763 (50% retracement), with the next area of interest coming in around $1690 (61.8% retracement) to $1695 (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.

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