Gold Price Consolidates as RSI Fails to Push Into Oversold Territory

Gold Price Talking Points

The price of gold consolidates amid the recent wave of monetary and fiscal stimulus programs to combat COVID-19, but the reaction to the former-resistance zone around $1450 (38.2% retracement) to $1452 (100% expansion) casts a constructive outlook for bullion as the Relative Strength Index (RSI) appears to be reversing course ahead of oversold territory.

Gold Price Consolidates as RSI Fails to Push Into Oversold Territory

The price of gold appears to be stuck in a narrow range as major central banks push their benchmark interest rates close to zero and deploy unconventional tools, but the pickup in financial market volatility may limit the recent pullback in bullion as market participants scale back their appetite for risk.

It remains to be seen if the efforts taken by the Federal Reserve and its major counterparts will cushion the world economy, but the ongoing shock to the global supply/demand chain may fuel the use of unconventional policy tools amid the growing number of coronavirus cases.

The slew of non-standard measures may ultimately lead to unintended consequences as central banks push monetary policy into uncharted territory, and the low interest environment may act as a backstop for the price of goldas market participants look for an alternative to fiat-currencies.

With that said, the broader outlook for bullion remains constructive as the reaction to the former-resistance zone around $1450 (38.2% retracement) to $1452 (100% expansion) helped to rule out the threat of a Head-and-Shoulders formation, and the recent reaction to the key price zone may generate a lager rebound in the price of gold as the Relative Strength Index (RSI) appears to be reversing course ahead of oversold territory.

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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 price of gold has failed to maintain the monthly opening range for March after trading to a fresh yearly high ($1704), with the Relative Strength Index (RSI) signaling a potential change in gold price behavior as the oscillator deviates with price and snaps the upward trend carried over from last year.
• Nevertheless, the reaction to the former-resistance zone around $1450 (38.2% retracement) to $1452 (100% expansion) casts a constructive outlook for bullion especially as the RSI appears to be reversing course ahead of oversold territory.
• Need a close above the Fibonacci overlap around $1509 (61.8% retracement) to $1515 (23.6% expansion) to bring the $1558 (38.2% expansion) to $1567 (161.8% expansion) region on the radar, with the next area of interest coming in around $1587 (61.8% retracement) to $1592 (50% expansion).

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— Written by David Song, Currency Strategist

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