Gold Price Talking Points

The price of gold trades near the 2020 high ($1779) ahead of the Federal Open Market Committee (FOMC) Minutes, and current market conditions may keep the precious metal afloat as the central bank vows to “increase our holdings of Treasury securities and agency mortgage-backed securities over coming months at least at the current pace.”

Gold Price Outlook: Bullish Behavior May Persist Ahead of FOMC Minutes

The price of gold has traded to fresh yearly highs during every single month so far in 2020, and the bullish behavior may persist in July as the reversal from the May low ($1670) appears to be gathering pace, with the break above the May high ($1765) bringing the 2012 high ($1796) back on the radar.

Looking ahead, the FOMC Minutes on tap for July 1 may heighten the appeal of gold even though the update to the Summary of Economic Projections (SEP) show “a general expectation of an economic recovery beginning in the second half of this year” as Chairman Jerome Powell tells US lawmakers that the committee is “committed to using our full range of tools to support the economy in this challenging time.

In turn, the recent contraction in the Federal Reserve’s balance sheet may end up being short lived as the reduction is largely driven by a decline in liquidity swaps, and current market conditions may keep the price of gold afloat as the FOMC prepares to purchase US corporate bonds under the Secondary Market Corporate Credit Facility (SMCCF).

It seems as though the FOMC will rely on its asset purchases to support the US economy as the central bank shows little interest for a yield curve control program, and Fed officials appear to be in no rush to deploy more unconventional tools as Chairman Powell emphasizes that “some indicators have pointed to a stabilization, and in some areas a modest rebound, in economic activity.

With that said, the FOMC Minutes may indicate that the central bank will stick to the sidelines at the next interest rate decision on July 29 as Chairman Powell and Co. “evaluate our monetary policy stance and communications,” but the low interest rate environment along with the ballooning central bank balance sheets may continue to act as a backstop for the price of goldas marketparticipants look for an alternative to fiat-currencies.

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Gold Price Daily Chart

Image of gold price daily chart

Source: Trading View

  • The opening range for 2020 instilled a constructive outlook for the price of gold as the precious metal cleared the 2019 high ($1557), with the Relative Strength Index (RSI) pushing into overbought territory during the same period.
  • A similar scenario materialized in February, with the price of gold marking the monthly low ($1548) during the first full week, while the RSI broke out of the bearish formation from earlier this year to push back into overbought territory.
  • However, the monthly opening range for March as less relevant amid the pickup in volatility, with the decline from the monthly high ($1704) leading to a break of the January low ($1517).
  • Nevertheless, the reaction to the former-resistance zone around $1450 (38.2% retracement) to $1452 (100% expansion) instilled a constructive outlook for bullion especially as the RSI reversed course ahead of oversold territory and broke out of the bearish formation from February.
  • In turn, gold cleared the March high ($1704) to tag a new yearly high ($1748) in April, with the bullish behavior also taking shape in May as the precious metal traded to a fresh 2020 high ($1765).
  • The bullish behavior persists in June as the reversal from the May low ($1670) produces a break of the monthly opening range and pushes the price of bullion to a fresh 2020 high ($1779), and the trend may carry into July as the move above the May high ($1765) bringing the 2012 high ($1796) back on the radar.
  • Will keep a close eye on the RSI as it clears the negative slope from the previous month and approaches overbought territory, with a move above 70 likely to be accompanied by higher gold price as the bullish momentum gathers pace.
  • A break/close above the $1786 (38.2% expansion) region may spur a run at the 2012 high ($1796), with the next area of interest comes in around $1803, the November 2011 high, followed by the $1822 (50% expansion) region.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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