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Gold Price Reveres Ahead of 50-Day SMA as Post-Fed Rebound Persists

Gold Price Reveres Ahead of 50-Day SMA as Post-Fed Rebound Persists

David Song, Strategist

Gold Price Talking Points

The price of gold consolidates following the Federal Reserve interest rate decision as the central bank shows a greater willingness to further adjust the forward guidance for monetary policy, and bullion appears to be reversing ahead of the 50-Day SMA ($1882) as it retains the advance from the monthly low ($1895).

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Gold Price Reveres Ahead of 50-Day SMA as Post-Fed Rebound Persists

The recent rebound in the price of gold seems to have stalled as the S&P 500 index trades around its 200-Day SMA, and the recovery in investor confidence may continue to drag on the precious metal as the Russia-Ukraine war continues to pose a threat to the global economy.

At the same time, recent remarks from Fed Chairman Jerome Powell seems to be influencing the price of gold as the central bank head warns that the Federal Open Market Committee (FOMC) could “move more aggressively by raising the federal funds rate by more than 25 basis points, and bullion may face headwinds ahead of the next interest rate decision on May 4 as the FOMC plans to winddown its balance sheet in 2022.

Until then, data prints coming out of the US may impact the outlook for gold as Chairman Powell acknowledges that “an extended period of high inflation could push longer-term expectations uncomfortably higher,” and signs of persistent price pressures may keep the precious metal afloat as market participants hedge against inflation.

In turn, the Russia-Ukraine war along with evidence of rising inflation may continue to heighten the appeal of gold even though the CME FedWatch Tool now reflects a greater than 60% for a 50bp Fed rate hike, and bullion may stage further attempts to test the record high ($2075) as long as it retains the advance from the March low ($1895).

With that said, the decline from the yearly high ($2070) may turn out to be a correction in the broader trend as the rally in the price of gold generates a positive slope in the 50-Day SMA ($1882), but the precious metal may face range bound conditions over the coming days if the recovery in risk appetite persist.

Gold Price Daily Chart

Image of Gold price daily chart

Source: Trading View

  • The broader outlook for the price of gold is constructive as the 50-Day SMA ($1882) establishes a positive slope, but the failed attempt to test the record high ($2075) generated a sell-signal in the Relative Strength Index (RSI) as the oscillator fell back below 70, with the precious metal taking out the opening range for March as it slipped to a fresh monthly low ($1895).
  • Nevertheless, the decline from the yearly high ($2070) may turn out to be a correction in the broader trend as the price of gold reverses ahead of the moving average, and the string of failed attempts to close below the Fibonacci overlap around $1916 (38.2% expansion) to $1929 (23.6% retracement) may push the precious metal back towards the $1990 (78.6% retracement) area as it appears to be responding to the former resistance zone.
  • Next area of interest comes in around the $2025 (78.6% expansion) region, with a break/close above the $2063 (61.8% expansion) area raising the scope for another run at the record high ($2075)
  • However, failure to retain the advance from the monthly low ($1895) may push the price of gold towards the 50-Day SMA ($1882), with a move below the $1876 (50% retracement) area opening up the $1859 (23.6% retracement) region.

--- 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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