GOLD PRICE FORECAST: NOVEMBER SELLOFF WARNS OF SHIFT IN MARKET BEHAVIOR
The price of goldappears to be moving to the beat of its own drum as the precious metal trades at its lowest level since July while the US Dollar Index (DXY) seems poised to challenge the yearly low set on September 1 (91.75), and the low interest environment along with the ballooning central bank balance sheets may no longer provide a backstop for bullion amid headlines that US President-elect Joe Biden will nominate former Federal Reserve Chair Janet Yellen to be the next Treasury Secretary.

Even though Treasury Secretary Steven Mnuchin lays out plans to scale back the emergency lending facilities, the Biden administration may take a more proactive approach in supporting the US economy as the ‘Build Back Better’ initiative pledges to “provide further immediate relief to working families, small businesses, andcommunities.” As a result, the agenda for another fiscal stimulus package may encourage the Federal Reserve to endorse a wait-and-see approach at its last interest rate decision for 2020 as Chairman Jerome Powell and Co. “assess how our ongoing asset purchases can best support ourmaximumemployment and price-stability objectives as well as market functioning and financial stability.”

It seems as though the Fed will continue to utilize its balance sheet to support the US economy as the central bank plans to “increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace,” and it remains to be seen if the Federal Open Market Committee (FOMC) will unveil a more detailed forward guidance at the next interest rate decision on December 16 as Chairman Powell and Co. are slated to update the Summary of Economic Projections (SEP).

GOLD PRICE DAILY CHART
The price of gold pushed to fresh yearly highs throughout the first half 2020, with the bullish price action also taking shape in August as the precious metal tagged a new record high ($2075).

However, the bullish behavior failed to materialize in September as the price of gold traded below the 50-Day SMA ($1891) for the first time since June, with developments in the Relative Strength Index (RSI) negating the wedge/triangle formation established in August as the oscillator slipped to its lowest level since March.

The correction from the record high ($2075) now indicates a potential shift in market behavior rather than an exhaustion in the bullish trend as the price of gold trades at its lowest level since July, with the RSI highlighting a similar dynamic as it comes up against oversold territory.

The RSI may show the bearish momentum gathering pace if it breaks below 30 for the first time in 2020, with the oversold reading likely to be accompanied by lower gold prices like the behavior seen in 2018.

The price of gold appears to be recovering ahead of the 200-Day SMA ($1797) as it bounces back from the weekly low ($1800), but lack of momentum to push back above the $1816 (61.8% expansion) to $1822 (50% expansion) zone keeps the $1786 (38.2% expansion) area on the radar, with the next region of interest coming in around $1754 (261.8% expansion) to $1762 (78.6% expansion).

Reference by: David Song, Currency Strategist