Gold Price Talking Points

The price of gold climbs to a fresh yearly high ($1480) as the trade truce between the US and China unravels, and the weakening outlook for global growth may heighten the appeal of bullion as market participants look for an alternative to fiat currencies.

Gold Price Breakout Raises Scope for Overbought RSI Signal

Gold negates the reaction to the Federal Reserve meeting, with the precious metal extending the advance from the monthly-low ($1400) as rising tensions between the US and China puts pressure on the central bank to establish a rate easing cycle.

The Federal Open Market Committee (FOMC) may continue to respond to the shift in trade policy as China weakens the Yuan reference rate, and the threat of a currency war may force Chairman Jerome Powell & Co. to alter the forward guidance as the central bank is slated to release the updated Summary of Economic Projections (SEP) at the next interest rate decision on September 18.

In fact, Fed Fund futures now highlight a 100% probability for at least a 25bp reduction, and the FOMC may come under pressure to reverse the four rate hikes from 2018 asPresident Donald Trumpfavors “a lengthy and aggressive rate-cutting cycle.”

With that said, the risk of a policy error may push market participants to hedge against fiat currencies, and the growing threat of a US-China trade war is likely to keepgold prices afloat as there appears to be a flight to safety.

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Gold Price Daily Chart

Keep in mind, the broader outlook for gold prices remain constructive as both price and the Relative Strength Index (RSI) clear the bearish trends from earlier this year.

More recently, gold breaks out of a near-term holding pattern following the failed attempt to c lose below the $1402 (78.6% expansion) region , with the topside targets still on the radar as the price for bullion carves a fresh series of higher highs and lows.

Need a close above $1488 (61.8% expansion) to open up the Fibonacci overlap around $1509 (61.8% retracement) to $1517 (78.6% expansion).

Will keep a close eye on the RSI as it comes up against overbought territory, with a move above 70 raising the risk for a further advance in the price of gold as the bullish momentum gathers pace.

For more in-depth analysis, check out the 3Q 2019 Forecast for Gold

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.