Gold Price Talking Points

The price of gold tumbles to a fresh monthly low ($1776) as the Federal Reserve continues to upgrade its economic outlook for the US economy, and looming developments in the Relative Strength Index (RSI) may show the bearish momentum gathering pace as the indicator approaches oversold territory.

Advertisement

Gold Price Vulnerable Following FOMC as RSI Approaches Oversold Zone

The price of gold appears to be on track to test the May low ($1766) as fresh projections from Fed officials prop up US Treasury yields, and it looks as though the double-bottom formation from earlier this year has run its course as bullion trades below the 50-Day SMA ($1831) for the first time since April.

Image of Fed interest rate dot plot

Source: FOMC

The upward revision to the Fed’s interest rate dot plot suggests the Federal Open Market Committee (FOMC) will shift gears “sooner than previously projected” as the central bank now forecast two rate hikes for 2023, and a growing number of Fed officials may gradually change their tone over the coming months as the US economy is projected to grow 7.0% in 2021.

In turn, the FOMC may start to discuss an exit strategy as “real GDP this year appears to be on track to post its fastest rate of increase in decades,” but it seems as though Chairman Jerome Powell will continue to push a dovish forward guidance for the foreseeable future as the central bank head warns that “the recovery is incomplete and risks to the economic outlook remain.

During the press conference, Chairman Powell emphasized that “reaching the standard of substantial further progress is still a ways off” as the labor market remains below pre-pandemic levels, with the central bank head pledging to “provide advance notice before announcing any decision to make changes to our purchases” as the FOMC stays on track to “increase our holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month.”

Despite the wait-and-see approach for monetary policy, speculation for a looming shift in Fed policy may keep US Treasury yields afloat, and the price of gold may continue to give back the advance following the double-bottom formation as trades below the 50-Day SMA ($1831) for the first time since April.

With that said, looming developments in the Relative Strength Index (RSI) may show the bearish momentum gathering pace as the indicator approaches oversold territory, with a move below 30 in the oscillator likely to be accompanied by lower gold prices like the behavior seen earlier this year.

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 ($1837) 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 appears to have run its course as bullion trades below the 50-Day SMA ($1831) for the first time since April.
  • Looming developments in the RSI may show the bearish momentum gathering pace as it approaches oversold territory, with a move below 30 in the oscillator likely to be accompanied by lower gold prices like the behavior seen in March.
  • In turn, the price of gold appears to be on track to test the May low ($1766), which largely lines up with the Fibonacci overlap around $1743 (23.6% expansion) to $1763 (50% retracement), a break of the April low ($1706) opening up the $1690 (61.8% retracement) to $1695 (61.8% expansion) region.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

Source

Share this now: