Gold Price Talking Points
Recent price action in gold raises the scope for a larger rebound as the precious metal snaps the series of lower highs and lows carried over from the previous week.
Gold Prices React to Former Resistance Zone and Snap Bearish Series
The near-term pullback in the price of gold appears to be nearing an end despite the recent shift in the Federal Reserve’s forward guidance as it reacts to the former-resistance zone around $1447 (38.2% expansion) to $1457 (100% expansion).
Doubts surrounding “phase one” of the US-China trade agreement appears to be shaking up the near-term outlook for gold as President Donald Trump insists that the US and China “haven’t agreed to anything.”
Moreover, President Trump revealed that “we were so close to a deal” while speaking at the Economic Club of New York, and went onto emphasized the administration’s approach to“tell it to everybody: if we don’t make a deal, we’re going to substantially raise those tariffs.”
The ongoing transition in US trade policy may become a growing concern for the Federal Open Market Committee (FOMC) as “weakness in global growth and trade developments have weighed on the economy and pose ongoing risks.”
Nevertheless, fresh remarks from Fed officials suggest the central bank will move to the sidelines and endorse a wait-and-see approach at its next interest rate decision on December 11 as Chairman Jerome Powell tells US lawmakers that “the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth.”
In turn, a growing number of FOMC members may tame expectations for another rate cut in 2019, but it remains to be seen if Chairman Powell and Co. will project a lower trajectory for the benchmark interest rate when the central bank updates the Summary of Economic Projections (SEP) at its last meeting for the year.
As a result, headlines surrounding the US-China trade negotiations may continue to sway the near-term outlook for gold prices, but the reaction to the former-resistance zone around $1447 (38.2% expansion) to $1457 (100% expansion) helps to rule out the threat of a Head-and-Shoulders formation as the price for bullion snaps the string of lower highs and lows carried over from the previous week.
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Gold Price Daily Chart
Source: Trading View
- Keep in mind, the broader outlook for gold prices remain constructive as both price and the Relative Strength Index (RSI) clear the bearish trends from earlier this year, with the precious metal trading to a fresh yearly-high ($1557) in September.
- However, the near-term correction in the price for gold has been accompanied by a bearish formation in the RSI, with the pattern offering a mixed signal as a bull flag formation also takes shape.
- With that said, the reaction to the Fibonacci overlap around $1447 (38.2% expansion) to $1457 (100% expansion) may to rule out the threat of a Head-and-Shoulders formation as the former-resistance zone appears to be acting as support.
- Still need a break/close above the $1509 (61.8% retracement) to $1517 (78.6% expansion) region to bring the topside targets on the radar, with the first topside hurdle comes in around $1554 (100% expansion), which largely lines up with the yearly-high ($1557).
For more in-depth analysis, check out the 4Q 2019 Forecast for Gold
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— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong.