GOLD : Test Monthly Low

(Mon, 19 Oct 2020). The price of gold trades in a narrow range after failing to test the monthly low ($1873), but fresh remarks from Federal Reserve officials may influence the precious metal as it shows an inverse relationship with the US Dollar.

GOLD FORECAST: FAILURE TO TEST MONTHLY LOW WARNS OF RANGE BOUND PRICES

The price of goldretains the opening range for October even though the US Dollar Index (DXY) appears to be reacting to a confluent zone of support, and the precious metal may continue to consolidate as the Federal Open Market Committee (FOMC) plans to unveil a “more explicit outcome-based forward guidance.”

In turn, the price of gold may work its way towards the monthly high ($1933) if FOMC officials show a greater willingness to further support the US economy, and key themes resulting from the COVID-19 pandemic may keep the precious metal afloat as the Fed’s balance sheet increases for the second week to approach the peak from June.

It remains to be seen if the decline from the record high ($2075) will turn out to be a change in market behavior or an exhaustion in the bullish trend as the price of gold no longer traders to fresh yearly highs during every single month in 2020, but the low interest environment along with the ballooning central bank balance sheets may continue to heighten the appeal of gold as an alternative to fiat-currencies as US lawmakers struggle to pass another round of fiscal stimulus.

As a result, the FOMC may come under pressure to deploy more unconventional tools as the deadlock in Congress raises the threat for a protracted recovery, and the price of gold may continue to reflect an inverse relationship with the US Dollar as Chairman Jerome Powell and Co. remain “committed to using the Federal Reserve`s full range of tools in order to support the U.S. economy.”

Looking ahead, key market themes may persist ahead of the next FOMC interest rate decision on November 5 as the central bank vows to “increase its holdings of Treasury securities and agency MBS (mortgage-backed securities) at least at the current pace,” and the price of gold may continue to consolidate after failing to test the monthly low ($1873) as it retains the opening range for October.

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