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Gold Price Rebound Following US CPI Raises Potential for RSI Buy Signal

Gold Price Rebound Following US CPI Raises Potential for RSI Buy Signal

David Song,
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Gold Price Talking Points

The price of gold bounces back from a fresh yearly low ($1707) after showing a kneejerk reaction to the larger-than-expected uptick in the US Consumer Price Index (CPI), and looming developments in the Relative Strength Index (RSI) may point to a larger rebound in bullion as the oscillator is on the cusp of pushing above 30.

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Gold Price Rebound Following US CPI Raises Potential for RSI Buy Signal

The price of gold tracks the recovery across precious metals as it pares the decline from the start of the week, and bullion may attempt to retrace the decline from the monthly high ($1814) as it appears to be reversing course ahead of the August 2021 low ($1682).

As a result, a near-term correction may materialize ahead of the Federal Reserve interest rate decision on July 27 as the uptick in the US CPI encourages market participants to hedge against inflation, and it remains to be seen if Chairman Jerome Powell and Co. will respond to the development as “participants judged that an increase of 50 or 75 basis points would likely be appropriate at the next meeting.”

Image of CME FedWatch Tool

Source: CME

However, the Federal Open Market Committee (FOMC) may continue to adjust its approach in normalizing monetary policy as the CME FedWatch Tool reflects a greater than 70% probability for a 100bp rate hike later this month, and the FOMC rate decision may drag on the price of gold if the central bank prepares US households and businesses for a restrictive policy.

Until then, speculation surrounding the Fed’s next move may influence bullion as the update to the US CPI generates a kneejerk reaction, but lack of momentum to test the August 2021 low ($1682) may lead to near-term correction in the price of gold as it snaps the recent series of lower highs and lows.

With that said, the rebound from the monthly low ($1707) may generate a textbook buy signal in the RSI as the oscillator is on the cusp of pushing above 30, and the precious metal may attempt to retrace the decline from the monthly high ($1814) as the bearish momentum abates.

Gold Price Daily Chart

Image of Gold price daily chart

Source: Trading View

  • The price of gold appears to be reversing course ahead of the August 2021 low ($1682) as the rebound from the yearly low ($1707) pushes the Relative Strength Index (RSI) towards 30, with the oscillator on the cusp of offering a textbook buy signal as it recovers from oversold territory.
  • Lack of momentum to hold below the $1725 (38.2% retracement) region may push the price of gold back towards the Fibonacci overlap around $1761 (78.6% expansion) to $1771 (23.6% retracement), with a break above the monthly high ($1814) opening up the $1816 (61.8% expansion) area.
  • However, the rebound from the yearly low may turn out to be a correction in the broader trend as the 50-Day SMA ($1822) reflects a negative slope, and the moving average may continue to cap the price of gold like the price action seen earlier during the previous month.
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--- 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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