The price of goldhas traded to fresh yearly highs during every single month so far in 2020, and the extreme reading in the RSI is likely to be accompanied by higher gold prices amid the behavior seen in February.
In turn, the bullish price action may carry into August as long as the RSI holds above 70, and current market conditions may keep gold prices afloat as the Federal Open Market Committee (FOMC)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.”
Source: FOMC
Looking ahead, the Fed’s balance sheet looks poised to cross back above $7 trillion as it expands for the second consecutive week, and more of the same from Chairman Jerome Powell and Co. may heighten the appeal of gold as the committee remains “committed to using our full range of tools to support the economy in this challenging time.”
With that said, it seems as though the FOMC will rely on its lending facilities as well as its asset purchases to support the US economy, and the threat of a double-dip recession may push the central bank to expand the size and scope of its quantitative easing (QE) programs as Fed officials show little interest adopting a yield caps or targets (YCT) policy.
Until then, it remains to be seen if the crowding behavior in the US Dollar will also carry into August as the IG Client Sentiment reportcontinues to show retail traders net-long USD/CHF, USD/CAD and USDJPY, while the crowd remains net-short NZD/USD, AUD/USD, GBP/USD and EUR/USD.
The net-long US Dollar exposure persists even though theDXY index continues to track the downward trend from the March high (102.99), and the low interest rate environment along with the ballooning central bank balance sheets may continue to act as a backstop for the price of gold as market participants look for an alternative to fiat-currencies.
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GOLD PRICE DAILY CHART
Source: Trading View
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