Gold price weakness to persist on failure to defend August opening range

[ArvinIG]

The price of gold struggles to hold above the 50-Day SMA as it gives back the advance from last week, and the precious metal may continue to track the negative slope in the moving average if it fails to defend the monthly low.

Source: Bloomberg

 

Commodities Gold Federal Open Market Committee Consumer price index Moving average Inflation

 

The price of gold appears to be reversing ahead of the monthly high ($1808) even as US Treasury yields remain under pressure, and the precious metal may threaten the opening range for August as it snaps the series of higher highs and lows from last week.

Source: DailyFX

It remains to be seen if the Federal Open Market Committee (FOMC) Minutes will influence the price of gold as the slowdown in the US Consumer Price Index (CPI) dampens bets for another 75bp rate hike, but hints of a looming shift in the Fed’s approach for combating inflation may prop up the precious metal as the central bank appears to be on track to winddown its hiking-cycle over the coming months.

As a result, the statement may foreshadow a shift in the Fed’s forward guidance if a growing number of officials show a greater willingness to implement smaller rate hikes, and the price of gold may stage a larger recovery ahead of the next interest rate decision on September 21 as it trades above the 50-Day SMA ($1780) for the first time since April.

However, more of the same from the FOMC may drag on the price of gold as Chairman Jerome Powell acknowledges that “another unusually large increase could be appropriate at our next meeting,” and the rebound from the yearly low ($1681) may turn out to be a near-term correction as the moving average continues to reflect a negative slope.

With that said, the price of gold may continue to track the negative slope in the moving average with the FOMC on track to carry out a restrictive policy, and the weakness in the precious metal may persist if it fails to defend the opening range for August.

Gold price daily chart

Source: TradingView

Summary

• Unlike the price action in June, gold managed to trade above the 50-Day SMA ($1780) earlier this month, with a break/close above the $1816 (61.8% expansion) region bringing the $1825 (23.6% expansion) to $1829 (38.2% retracement) region on the radar, however, the price of gold may continue to track the negative slope in the moving average as it appears to be reversing ahead of the monthly high ($1808), and failure to hold above the Fibonacci overlap around $1761 (78.6% expansion) to $1771 (23.6% retracement) may lead to a test of the monthly low ($1754).
• Lack of momentum to defend the opening range for August may push the price of gold back towards $1725 (38.2% retracement) area, with the next area of interest coming in around $1690 (61.8% retracement) to $1695 (61.8% expansion).

David Song | Analyst, DailyFX, New York City
16 August 2022

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.