GOLD PRICE TALKING POINTS

The V-shape rebound in the price of gold unravels as the Federal Open Market Committee (FOMC) Minutes foreshadow a change in the monetary policy outlook, but 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 ANALYSIS: CONTINUATION PATTERN APPEARS AHEAD OF SEPTEMBER

The price of gold appears to be stuck in a wedge/triangle formation after marking the longest stretch of gains (nine consecutive weeks) since 2006, and the precious metal may continue to consolidate ahead of the Federal Reserve Economic Symposium scheduled for August 27-28 as the FOMC discusses an outcome-based approach versus a calendar-based forward guidance for monetary policy.

In turn, the Fed symposium may sway the price of gold if Chairman Jerome Powell and Co. show a greater willingness to scale back its emergency tools over the coming months, but the event may ultimately signal more of the same for the next interest rate decision on September 16 as the Fed’s balance sheet climbs back above $7 trillion in August.

In fact, it seems as though the FOMC will retain the current policy beyond the US election as the committee extends its lending facilities through the end of the year, and the macroeconomic environment may keep gold prices afloat as it trades to fresh yearly highs during every single month so far in 2020.

Looking ahead, the net-long US Dollar bias from July also looks poised to persist as the IG Client Sentiment report shows retail traders still net-long USD/CHF, USD/CAD and USD/JPY, while the crowd remains net-short AUD/USD, GBP/USD, EUR/USD and NZD/USD.

Image of IG Client Sentiment

It remains to be seen if the crowding behavior will carry into September as the FOMC vows to “increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace,” but 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 committee votes unanimously to push back “the expiration of the temporary U.S. Dollar liquidity swap lines through March 31, 2021.”

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.

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 appears to be breaking out of the downward trend established earlier this month.

The string of failed attempts to close below the $1907 (100% expansion) to $1920 (161.8% expansion) may keep the price of gold within a continuation pattern as it tracks the trendline from the July low ($1758), but need a break/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).