GOLD : Downward Trend
(Mon, 5 Oct 2020). The price of gold trades in a narrow range following the limited reaction to the US Non-Farm Payrolls (NFP) report, and the precious metal may struggle to retain the series of higher highs and lows from the previous week as the Relative Strength Index (RSI) continues to track the downward trend carried over from August.
GOLD PRICE OUTLOOK MIRED BY DOWNWARD TREND IN RSI
Gold may continue to reflect an inverse relation with the US Dollar ahead of the Federal Open Market Committee (FOMC) Minutes as the precious metal clings to the rebound from the September low ($1849) while the Greenback remains under pressure.
However, gold has failed to exhibit the bullish trend from earlier this year as it no longer trades to fresh yearly highs during every single month in 2020, and the lack of momentum to hold above the August low ($1863) may indicate a potential shift market behavior as bullion trades below the 50-Day SMA ($1944) for the first time since June.
In turn, the price of gold may struggle to extend the series of higher highs and lows from the previous week as the Federal Reserve relies on its current tools to support the US economy, and the FOMC Minutes may reveal more of the same for the next interest rate decision on November 5 as the Summary of Economic Projections (SEP) show the longer run interest rate forecast unchanged from the June meeting.
The wait-and-see approach for monetary policy may sap investor confidence as the Fed’s balance sheet narrows to $7.056 trillion from $7.093 trillion on September 21, and waning speculation for additional monetary stimulus may prop up the US Dollar as most Fed officials judged that “yield caps and targets would likely provide only modest benefits in the current environment.”
Nevertheless, Chairman Jerome Powell and Co. may keep the door open to further support the US economy as “several participants suggested that additional accommodation could be required,” and the dovish forward guidance paired with the low interest rate environment may continue to heighten the appeal of gold as an alternative to fiat-currencies as the central bank remains “committed to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible.”
The tilt in retail sentiment may persist even though the FOMC plans to “achieve inflation that averages 2 percent over time,” and the crowding behavior in the US Dollar may coincide with the rebound in the gold prices as key market themes remain in place.
With that said, it remains to be seen if the correction from the record high ($2075) will turn out to be a material change in market behavior or an exhaustion of the bullish trend, and the Relative Strength Index (RSI) may offer a potential signal as the oscillator appears to be on track to threaten the downward trend established in August.
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