Gold Price Talking Points
The price of gold extends the bullish behavior from earlier this year as it trades to a fresh 2020 high ($1774) in June, and current market conditions may keep the precious metal afloat as the reversal from the May low ($1670) gathers pace.
Gold Price Extends Bullish Behavior in June to Mark Fresh 2020 High
The price of gold continues to trade to fresh yearly highs during every single month so far in 2020, and the break above the May high ($1765) may spur a test of the 2012 high ($1796) as bullion extends the series of higher highs and lows from the previous week.
Looking ahead, fresh data prints coming out of the US may influence the price of gold as the update to the Durable Goods Orders report is anticipated to show demand for large-ticket items rebounding 10.9% in May, while the final reading for the U. of Michigan Confidence survey is expected to reveal a small upward revision from an initial print of 78.9 in June.
A batch of positive developments may fuel hopes for a V-shape recovery as it boost the outlook for private sector consumption, one of the leading drivers of growthin the US, and the data prints may undermine the recent advance in the price of gold as it encourages the Federal Reserve to soften the dovish forward guidance for monetary policy.
It seems as though the Federal Open Market Committee (FOMC) is in no rush to deploy more unconventional tools as St. Louis Fed President James Bullard tames speculation for a yield curve control program, with the official insisting that “I don’t really think this is a pending thing for the committee” during an interview with Bloomberg News.
The comments from Bullard suggest Fed officials have little to no intentions “to put caps in” as the FOMC is “already expecting rates to be low for quite a while,”and the central bank may continue to rely on its balance sheet to support the US economy as Chairman Jerome Powell rules out a negative interest rate policy (NIRP) and vows to “increase our holdings of Treasury securities and agency mortgage-backed securities over coming months at least at the current pace.”
In turn, the recent contraction in the Fed’s balance sheet is likely to be short lived especially as the FOMC prepares to purchase US corporate bonds under the Secondary Market Corporate Credit Facility (SMCCF), and Chairman Powell and Co. may carry out a wait-and-see approach over the coming months as 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.”
With that said, the FOMC may stick to the same script and reiterate its pledge “evaluate our monetary policy stance and communications” at the next interest rate decision on July 29, 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 market participants look for an alternative to fiat-currencies.
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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 ($1774).
- The recent series of higher highs and lows along with the close above $1754 (261.8% expansion) brings the $1786 (38.2% expansion) region on the radar followed by the 2012 high ($1796).
- Will keep a close eye on the RSI as it approaches overbought territory after clearing the negative slope from the previous month, with a break above 70 likely to be accompanied by higher gold price as the bullish momentum gathers pace.
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— Written by David Song, Currency Strategist
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