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Gold Price Eyes December Low as RSI Flirts with Oversold Territory

Gold Price Eyes December Low as RSI Flirts with Oversold Territory

David Song, Strategist

Gold Price Talking Points

The price of gold appears to be tracking the negative slope in the 50-Day SMA ($1840) as it trades to a fresh yearly low ($1764), and bullion may attempt to test the December low ($1753) as the Relative Strength Index (RSI) flirts with oversold territory.

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Gold Price Eyes December Low as RSI Flirts with Oversold Territory

Gold now echoes the weakness across precious metal prices as it fails to defend the January low ($1779), and the RSI may show the bearish momentum gathering pace if the oscillator manages to push into oversold territory for the first time since last year.

It seems as though rising interest rates will continue to sap the appeal of gold as the Federal Reserve pledges to further normalize monetary policy over the remainder of the year, and bullion may face additional headwinds ahead of the next Federal Open Market Committee (FOMC) rate decision on July 27 as the central bank is widely expected to deliver another 75bp rate hike.

Image of CME FedWatch Tool

In fact, the CME FedWatch Tool currently shows a greater than 80% probability of seeing the FOMC increase the benchmark interest rate to a fresh threshold of 2.25% to 2.50% later this month, and it seems as though the Fed will step up its effort to combat inflation as Chairman Jerome Powell and Co. show a greater willingness to implement a restrictive policy.

As a result, the FOMC may carry its hiking cycle into 2023 as a growing number of Fed officials project a steeper path for US interest rates, and the price of gold may continue to trade to fresh yearly lows over the near-term as it appears to be tracking the negative slope in the 50-Day SMA ($1840).

With that said, the price of gold may attempt to test the December low ($1753) ahead of the next Fed rate decision as it fails to defend the opening range for 2022, and a move below 30 in the RSI is likely to be accompanied by a further decline in bullion like the price action seen during the previous year.

Gold Price Daily Chart

Image of Gold price daily chart

Source: Trading View

  • The price of gold trades to a fresh yearly low ($1764) following the string of failed attempts to push above the 50-Day SMA ($1840), and bullion may track the negative slope in the moving average as the Relative Strength Index (RSI) flirts with oversold territory.
  • A move below 30 in the RSI is likely to be accompanied by a further decline in the price of gold like the price action seen in 2021, but need a close below the Fibonacci overlap around $1761 (78.6% expansion) to $1771 (23.6% retracement) to bring the December low ($1753) on the radar.
  • Failure to defend the October low ($1746) may push the price of gold towards the $1725 (38.2% retracement) region, with a break below the September low ($1722) opening up the $1690 (61.8% retracement) to $1695 (61.8% expansion) area.
  • However, failure to break/close below the overlap around $1761 (78.6% expansion) to $1771 (23.6% retracement) may push the price of gold back towards $1816 (61.8% expansion), with the next area of interest coming in around $1825 (23.6% expansion) to $1829 (38.2% retracement).

--- 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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