Gold price forecast: RSI sell signal emerges

Gold Price Outlook

The price of gold snaps the recent series of higher highs and lows as it continues to pullback from a fresh yearly high ($2010), and bullion may face a larger pullback as the Relative Strength Index (RSI) falls back from overbought territory.

Gold price forecast: RSI sell signal emerges

The price of gold appears to be reversing ahead of the 2022 high ($2071) amid a rebound in US Treasury yields, and the precious metal may continue to give back the advance from the monthly low ($1809) as the RSI falls below 70 to reflect a textbook sell signal.

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At the same time, the Federal Reserve interest rate decision may dampen the appeal of bullion as the central bank is expected to deliver another 25bp rate hike, and the price of gold may come under pressure if the central bank prepares US households and businesses for a more restrictive policy.

Source: Federal Reserve

In turn, market participants may pay increased attention to the Summary of Economic Projections (SEP) as the update from the December meeting showed the Fed funds rate above the 5.00% in 2023, and more of the same from Chairman Jerome Powell and Co. may drag on the price of gold as the central bank sticks to its hiking-cycle.

However, fears of a US bank crisis may force the Federal Open Market Committee (FOMC) to adjust the forward guidance for monetary policy, and a downward revision in the Fed’s dot-plot may prop up the price of gold as market participants brace for a change in regime.

With that said, the price of gold may largely track the positive slope in the 50-Day SMA ($1883) if the FOMC shows a greater willingness to pause the hiking-cycle, but recent developments in the RSI warn of a larger pullback in bullion as the oscillator falls back from overbought territory.

Gold Price Chart – XAU/USD Daily

Chart Prepared by David Song, Strategist; Gold Price on TradingView

• The price of gold snaps the recent series of higher highs and lows following the failed attempt to test the 2022 high ($2071), with recent developments in the Relative Strength Index (RSI) warning of a larger pullback in bullion as the oscillator falls below 70 to indicate a sell signal.
• The bullish momentum may continue to abate as the RSI moves away from overbought territory, with a break/close below the $1928 (23.6% Fibonacci retracement) area raising the scope for a move towards $1897 (61.8% Fibonacci retracement).
• Failure to hold above the 50-Day SMA ($1883) may open up the $1859 (23.6% Fibonacci retracement) region, but the price of gold may track the positive in the moving average as long as it holds above the monthly low ($1809).

--- Written by David Song, Strategist

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