Gold Price Rally Pushes RSI Into Overbought Territory

The price of gold has cleared the February high ($1872) after pushing back above the 200-Day SMA ($1844), and precious metal may approach the yearly high ($1959) as a growing number of Federal Reserve officials warn of a transitory rise in inflation.

However, the minutes from the April meeting revealed a growing discussion within the FOMC to scale back the emergency measures as “a number of participants suggested that if the economy continued to make rapid progress toward the Committee's goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”

In turn, the FOMC may gradually change its tone over the coming as “continued progress on vaccinations and accommodative monetary and fiscal policies most likely would underpin further gains in economic activity,” and it remains to be seen if the central bank will adjust the forward guidance at its next interest rate decision on June 16 as Fed officials are slated to update the Summary of Economic Projections (SEP).

Until then, the dovish forward guidance may keep the price of gold afloat as “participants agreed that the economy was still far from the Committee's longer-run goals,” but speculation for a looming change in Fed policy may underpin the rise in longer-dated US Treasury yields as “participants assessed that risks to the outlook were no longer as elevated as in previous months.”

In turn, the decline from record high ($2075) may underscore a change intrend as the price of gold broadly reflects an inverse relationship with US yields, but the precious metal managed to establish a double bottom formation in March, with the key reversal pushing the precious metal above the 200-Day SMA ($1844) for the first time since February.

With that said, the price of gold may attempt to test the yearly high ($1959) as the Relative Strength Index (RSI) pushes into overbought territory, and the move above 70 in the indicator is likely to be accompanied by higher gold prices like the behavior seen in July 2020.

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