Gold Price Continuation Pattern in Focus Following Fed Symposium

Gold Price Talking Points

The price of gold attempts to break out last week’s range as the Federal Reserve Economic Symposium indicates more of the same regarding the monetary policy outlook, and the pullback from the record high ($2075) may prove to be an exhaustion in the bullish price action rather than a change in trend as a continuation pattern takes shape in August.

Gold Price Continuation Pattern in Focus Following Fed Symposium

The price of gold consolidates within the monthly range after marking the longest stretch of gains (nine consecutive weeks) since 2006, but a wedge/triangle formation may unfold over the coming days as the Federal Reserve Economic Symposium indicates more of the same for the next interest rate decision on September 16.

Recent remarks from Chairman Jerome Powell suggest the Federal Open Market Committee (FOMC) will continue to utilize its emergency tools as the central bank plans to “achieve inflation that averages 2 percent over time,” and it seems as though the Fed will retain the current policy beyond the US election as the “new Statement on Longer-Run Goals and Monetary Policy Strategy conveys our continued strong commitment to achieving our goals, given the difficult challenges presented by the proximity of interest rates to the effective lower bound.”

It remains to be seen if the FOMC will change its tone ahead of 2021 as Chairman Powell and Co. discuss an outcome-based approach versus a calendar-based forward guidance for monetary policy, but current market trends look poised to persist in September as the central bank show little indications of scaling back its the emergency measures.

In turn, the macroeconomic environment may keep gold prices afloat as its trades to fresh yearly highs during every single month so far in 2020, and the net-long US Dollar bias from July looks poised to persist even though the DXY index is on the verge of breaking a key support zone.

The IG Client Sentiment report continues to show retail traders net-long USD/CHF, USD/CAD and USD/JPY, while the crowd remains net-short EUR/USD, NZD/USD, GBP/USD and AUD/USD. The ongoing tilt in retail sentiment may continue to coincide with the bullish behavior in gold as the FOMC remains reluctant to alter the forward guidance for monetary policy, and the low interest rate environment along with the ballooning central bank balance sheets may continue to heighten the appeal of bullion as an alternative to fiat-currencies as the Fed vows to “increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace.

With that said, the pullback from the record high ($2075) may prove to be an exhaustion in the bullish behavior rather than a change in trend as the price of gold trades to fresh yearly highs during every single month so far in 2020, and a continuation pattern appears to be taking shape in August as the precious metal consolidates within the monthly range.

With that said, the pullback from the record high ($2075) may prove to be an exhaustion in the bullish behavior rather than a change in trend as a continuation pattern takes shape in August, and a wedge/triangle formation may pan out over the coming days as the price of gold trades to fresh yearly highs during every single month so far in 2020.

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Gold Price Daily Chart

Image of gold price daily chart

Source: Trading View

  • The technical outlook for the price of gold remains constructive as it trades to fresh yearly highs during every single month so far in 2020, with the bullish behavior also taking shape in August as precious metal tags a new 2020 high ($2075).
  • The price of gold cleared the previous record high recorded in September 2011 ($1921) even though the Relative Strength Index (RSI) failed to retain the upward from June, but the indicator registered a new extreme reading (88) for 2020 as the oscillator pushed into overbought territory for the third time this year.
  • In turn, therecent sell-signalin the RSI could be indicative of a potential exhaustion in the bullish behavior rather than a change in trend as it recovers from its lowest reading since June, and the indicator may help to validate the wedge/triangle formation as it breaks out of the downward trend established earlier this month.
  • The price of gold appears to be breaking out of a continuation pattern following the string of failed attempts to close below the $1907 (100% expansion) to $1920 (161.8% expansion), but need a close above the Fibonacci overlap around $1971 (100% expansion) to $1985 (261.8% expansion) to bring the $2025 (78.6% expansion) region back on the radar.
  • A break/close above $2025 (78.6% expansion) opens up the record high price ($2075), with the next area of interest coming in around $2092 (161.8% expansion).

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— Written by David Song, Currency Strategist

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