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Gold Price Rebound Still in Focus as Fed Relies on Non-Standard Tools

Gold Price Talking Points

The price of goldappears to be stuck in a narrow range as the precious metal struggles to extend the series of higher highs and lows from the start of the month, but the flight to safety may push bullion towards the yearly high ($1704) as market participants look for an alternative to fiat currencies.

Gold Price Rebound Still in Focus as Fed Relies on Non-Standard Tools

The recent advance in the price of gold seems to be sputtering even though Japan prepares to declare a state of emergency, and the precious metal may face range bound conditions as monetary as well as fiscal authorities take unprecedented steps to curb the weakening outlook for growth.

The response by major central banks appear to be shoring up investor confidence as the Federal Reserve prepares a “Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, and the efforts to combat economic shock may help to restore trader sentiment as Chairman Jerome Powell insists that “there can also be a good rebound” once the coronavirus is contained.

However, the Federal Open Market Committee (FOMC) may take additional steps to support the US economy as Chairman Powell emphasizes that the central bank is “prepared to use our full range of tools to support the flow of credit to households and business, to help keep the economy strong, and to promote our maximum employment and price stability goals.”

It remains to be seen if the slew of non-standard measures will ultimately lead to unintended consequences as major central banks push their benchmark interest rate close to zero and rely on their balance sheets to boost economic activity, and the low interest rate environment may act as a backstop for goldas marketparticipants look for an alternative to fiat-currencies.

In turn, 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, with the precious metal highlighting a similar behavior in March as the price of gold bounces back from the monthly low ($1451).

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Gold Price Daily Chart

Image of 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 recent decline producing a break of the January low ($1517).
  • 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 reverses course ahead of oversold territory and breaks out of the bearish formation carried over from the previous month.
  • Need a close above the Fibonacci overlap around $1627 (61.8% expansion) to $1635 (78.6% retracement) to bring the $1655 (161.8% expansion) region on the radar, with the next area of interest coming in around $1676 (78.6% expansion) followed by the yearly high ($1704).

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— Written by David Song, Currency Strategist

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