Golden grapples at the Fibonacci resistance … again

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Gold price analysis

  • Gold prices rebounded to become a key Fibonacci resistance level.
  • Since hitting a new seven-year high in May, gold prices have moved back and forth with little discernible long-term bias.

Gold price returns to Fibonacci resistance

It’s only been 24 hours since the Federal Reserve announced its most recent rate decision and the markets have already started to scare. While the Fed continued to underscore the expectation of low rates, FOMC President Jerome Powell did not seem overly optimistic about the outlook for economic conditions, particularly in employment. And given the extent of this risk rally and the speed with which it occurred, it makes sense that we should see some element of caution the day after the FOMC chief did not broadcast an optimistic tone on what he sees on the horizon.

Of particular relevance to these rallies, President Powell was asked to comment on the impact of recent Fed actions, alluding to the possibility of a bubble forming while the US stock markets climbed to their peaks, even as the coronavirus continues to spread and some states are in the midst of data peaks for new infections and hospitalizations. President Powell strongly emphasized that the dual mandate of the bank has so far been served by their actions; but at no point were these steps taken with the stock markets in mind.

This is relevant to gold, as the yellow metal has been well sold in the past year and a half, just as the Fed has become more accommodating. The story really started at the end of the FOMC hike cycle, around the opening of Q4 in 2018. In the first days of the quarter, Jerome Powell was asked directly about the neutral rate; market participants expect the head of the Fed to say that one or two rate hikes could bring the bank closer to this “goldilocks” destination. But that is not what he said – rather he said he thought the neutral rate was “very far”, giving rise to the idea that the Fed intended to continue raising until in 2019 and beyond.

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The markets didn’t like it. In short, stocks retreated and continued to sell over the Christmas holidays, and gold prices rallied under the apparent impetus that the Fed should eventually have to take a more accommodative stance. .

Weekly Gold Price Table

Weekly Gold Price Table

Graph prepared by James Stanley; Gold on Tradingview

The summer of last year was particularly memorable – that’s when rubber made its way as the Fed started laying the groundwork for the first of three rate cuts of the year last. As has happened, gold prices rose with an upward break, and this upward movement continued in September; at that time, price action began to digest and this digestion took the form of a falling wedge formation before a breakout in December.

Daily gold price table

Daily gold price table

Graph prepared by James Stanley; Gold on Tradingview

Welcome to Chaos (or 2020)

2020 has already been the year of books, and we’re not even halfway there. Puncturing the horizon is what appears to be a controversial presidential election in the United States; and along the way is the potential for considerable social conflict to go hand in hand with a global pandemic that is still raging.

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When this news started to flow during the March trade, gold prices fell, losing almost 15% of its value in less than two weeks. But – that same support that helped keep lows in December of last year quickly came back into play, and buyers then reacted with a robust up move that saw gold prices rise up to 20%. But after establishing a new seven-year high in mid-May, gold price action has moved back and forth with no discernible long-term bias. An element of short-term support was posted on Monday, which led to a further rebound in Fibonacci resistance around the 1742.50 area on the chart. But so far, this movement has come to a standstill, giving rise to a potential for continued digestion as the world waits to see what is in the next corner.

Gold price four hour chart

Four hour gold price chart

Graph prepared by James Stanley; Gold on Tradingview

– Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX



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