Gold Price Holds Near 2020 High As RSI Flirts With Overbought Zone

GOLD PRICE TALKING POINTS

The price of gold trades near the 2020 high ($1818) despite the ongoing contraction in the Federal Reserve’s balance sheet, and the Relative Strength Index (RSI) may continue to flirt with the overbought territory as the indicator clings to the upward trend carried over from the previous month.

GOLD PRICE HOLDS NEAR 2020 HIGH AS RSI FLIRTS WITH OVERBOUGHT ZONE

The price of gold has traded to fresh yearly highs during every single month so far in 2020, with bullion clearing the 2012 high ($1796) earlier this month as the RSI established an upward trend in June.

The indicator may show the bullish momentum gathering pace if it rebounds from trendline support and produces the extreme readings seen in February, but the bullish behavior may persist throughout the second half of 2020 as the Federal Reserve vows to “increase its holdings of Treasury securities and agency MBS (Mortgage-Backed Security) and agency CMBS (Commercial Mortgage-Backed Security) at least at the current pace.”

It seems as though the Federal Open Market Committee (FOMC) will rely on its lending facilities as well as its asset purchases to support the US economy as the central bank shows little interest in adopting a yield caps or targets (YCT) policy, and the recent contraction in the Federal Reserve’s balance sheet may end up being short-lived as the reduction is largely driven by a decline in liquidity swaps.

Image of Federal Reserve balance sheet

In turn, current market conditions may keep the price of gold afloat as the US economy“is likely to need support from the highly accommodative monetary policy for some time,” and the FOMC may continue to endorse dovish forward guidance at the next interest rate decision on July 29 as Fed officials appear to be ruling out a V-shape recovery.

Atlanta Fed President Raphael Bostic warns that the US economy may not return to pre-pandemic conditions “until mid-2021 or maybe later into 2022” during a video conference with The Tax Policy Center, with the official going onto say that there are going to be “bumps along the way as we learn things about how the virus is progressing.”

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