Gold Price Outlook Vulnerable to RSI Sell Signal

Gold Price Talking Points

The price of gold trades to a fresh monthly high ($1775) as it extends the series of higher highs and lows from last week, but the Relative Strength Index (RSI) may offer a textbook sell signal for the precious metal should the oscillator struggle to hold above 70.

Gold Price Outlook Vulnerable to RSI Sell Signal

The price of gold has cleared the September high ($1735) as the larger-than-expected slowdown in the US Consumer Price Index (CPI) fuels speculation for a smaller Federal Reserve rate hike in December, and bullion may attempt to retrace the decline from the August high ($1808) as long as Treasury yields remain under pressure.

At the same time, Fed Governor Lael Brainard, a permanent voting-member on the Federal Open Market Committee (FOMC) acknowledged that “it will probably be appropriate soon to move to a slower pace of rate increases” during an interview with Bloomberg News, but went onto say that the central bank has “additional work to do both on raising rates and sustaining restraint to bring inflation down to 2% over time.”

The comments suggests the FOMC will continue to implement higher interest rates over the coming months as the committee pursues a restrictive policy, and it remains to be seen if Chairman Jerome Powell and Co. will adjust the forward guidance at the next interest rate decision on December 14 as the central bank is slated to update the Summary of Economic Projections (SEP).

Source: CME

Until then, growing expectations for a shift in the Fed’s hiking-cycle may keep the price of gold afloat as the CME FedWatch Tool reflects a higher than 80% probability for a 50bp hike, and the bullish price action may persist over the coming days as growing number of FOMC officials show a greater willingness to shift gears.

With that said, the price of oil may attempt to retrace the decline from the August high ($1808) after clearing the September high ($1735), but the RSI may offer a textbook sell signal if the oscillator falls back from overbought territory.

Gold Price Daily Chart

Source: Trading View

• The price of gold clears the September high ($1735) as it carves a series of higher highs and lows, with the recent advance in bullion pushing the Relative Strength Index (RSI) into overbought territory.
• The move above the $1762 (78.6% expansion) to $1763 (50% retracement) region may push the price of gold towards the August high ($1808), with a break/close above $1816 (61.8% expansion) opening up the Fibonacci overlap around $1837 (38.2% retracement) to $1847 (100% expansion).
• However, the RSI may offer a textbook sell signal if it struggles to hold above 70, and lack of momentum to hold above the $1762 (78.6% expansion) to $1763 (50% retracement) region may push the price of gold back towards $1726 (38.2% retracement), with the next area of interest coming in around $1690 (61.8% retracement) to $1695 (61.8% expansion).

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong