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Gold Price Reverses Ahead of July High to Trade Back Below 200-Day SMA

Gold Price Reverses Ahead of July High to Trade Back Below 200-Day SMA

David Song, Strategist

Gold Price Talking Points

The price of gold continues to bounce back from a fresh monthly low ($1783) as it snaps the series of lower highs and lows from the start of the week, but the failed attempt to clear the July high ($1834) undermines the recent recovery in bullion as it slips back below the 200-Day SMA ($1809).

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Gold Price Reverses Ahead of July High to Trade Back Below 200-Day SMA

The broader outlook for the price of gold remains tilted to the downside as the 200-Day SMA ($1809) continues to reflect a negative slope, and the precious metal may face headwinds ahead of the next Federal Reserve interest rate decision on September 22 as the central bank prepares to scale back monetary support.

Recent remarks from St. Louis Fed President James Bullard, who votes on the Federal Open Market Committee (FOMC) in 2022, suggests the central bank will switch gears over the coming months as “the big picture is that the taper will get going this year and will end sometime by the first half of next year.

Image of Federal Reserve interest rate dot plot

Source: FOMC

As a result, speculation for a further shift in Fed policy may continue to drag on the price of gold as Chairman Jerome Powell and Co. forecast two rate hikes for 2023, and it remains to be seen if Fed officials will implement material changes to the Summary of Economic Projections (SEP) as the minutes from the July meeting revealed that “some participants noted that there were upside risks to inflation associated with concerns that supply disruptions and labor shortages might linger for longer than currently anticipated.”

In turn, the fresh forecasts from Fed officials may drag on the price of gold if the Chairman Powell and Co. show a greater willingness to normalize monetary policy sooner rather than later, but more of the same from the central bank may heighten the appeal of gold as the FOMC carries out an outcome-based approach for monetary policy.

With that said, the price of gold may consolidate ahead of the FOMC rate decision on tap for later this month amid the failed attempt to clear the July high ($1834), and the rebound from the August low ($1682) may turn out to be a correction in the broader trend rather than a change in market behavior as the precious metal struggles to hold above the 200-Day SMA ($1809).

Gold Price Daily Chart

Image of Gold price daily chart

Source: Trading View

  • Keep in mind, the negative slope in the 200-Day SMA($1809) indicates that the broader trend for bullion remains tilted to the downside, with a ‘death cross’ formation taking shape in August as theRelative Strength Index (RSI) pushed into oversold territory.
  • However, lack of momentum to test the March low ($1677) generated a textbook buy signal in the RSI as the oscillator climbed back above 30, with the move above the $1786 (38.2% expansion) region pushing the price of gold above the 200-Day SMA ($1809).
  • Nevertheless, the rebound from the August low ($1682) may turn out to be a correction in the broader trend rather than a change in market behavior amid the failed attempt to clear the July high ($1834), with a close below the $1786 (38.2% expansion) region opening up the Fibonacci overlap around $1743 (23.6% expansion) to $1763 (50% retracement).
  • Next area of interest comes in around $1690 (61.8% retracement) to $1695 (61.8% expansion), with a break of the August low ($1682) bring the March low ($1677) on the radar.

--- 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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