On September 16, 2020, gold regained the bids above $1,950 having settled Tuesday slightly lower at $1,954. The precious metal saw good two-way price swings the previous day mainly supported by the US dollar dynamics and global market sentiment. All that happened in the absence of any considerable US macronews.
Gold surged to two-week highs of about $1,972 in the first half of the day which was underpinned by significant US dollar supply. Also, upbeat Chinese activity numbers lifted the market mood which downed the dollar slightly.
Nonetheless, during the American trading session, gold lost over $20 as the dollar staged a strong comeback amid a resurgent haven demand on worries over the United States fiscal deadlock and growing deficit. Additionally, the tech rally-inspired gains on Wall Street indices also dampened the sentiment revolving around gold.
In the lead up to the Federal Reserve (Fed) showdown that is scheduled to happen on September 16 at 1800 GMT, the dollar appears to have given up overnight gains amid dovish expectations. But, the Federal Reserve seems unlikely to make any considerable changes to its monetary policy settings. Nonetheless, it might formally announce the adoption of the average inflation targeting (AIT) framework.
The primary focus will be on the central bank’s long-term projections and dot plot chart that is expected to read dovish. Currently, the economy continues to battle out the coronavirus blow. A dovish and uncertain Fed outcome may trigger a fresh sell-off in the US currency which will, in turn, benefit gold.
Golden Triangle Effect
Gold was seen to confirm a symmetrical triangle breakout after closing Monday above the falling trendline (pattern) hurdle at $1955.18. On September 15, the price closed in the red but it finally found some acceptance slightly above the critical $1950 level for the second day in a row. The precious metal managed to recapture the 21-day Simple Moving Average (DMA), now at $1944.30.
With that in mind, the price of gold now trades above all the major DMAs alongside a bullish 14-day Relative Strength Index (RSI) which is currently rising higher at 54.95. In the scenario that the Fed turns out to be more dovish than expected, gold has some room for a test of $2,000. Nevertheless, a closing above critical resistance is located near $1,973 which is needed for additional upside.
Alternatively, the price of gold may drop back towards the upward-sloping 50-DMA at $1929. Below that zone, the September 8 low of $1906 could be put at risk. A daily closing located below the latter would prompt the resumption of the corrective declines from record highs of $2,075.
Gold Is Still Bullish
Today, gold is flirting with a 6-month trendline for the 9th consecutive trading day. At the time of writing, the precious metal is trading just below the ascending trendline at $1,956. The haven metal hit a low of $1,906.80 on Sept. 8 and rose to a high of $1,972 on Tuesday.
But, all through the recovery rally, the bulls appear to have struggled to establish some foothold above the trendline hurdle. In the meantime, the bears have had a strong capitalizing on the bull failure at the trendline zone. For example, the ascending trendline was breached on Sept. 8 and Sept. 11. Nevertheless, the follow-through was bullish both times.
In that context, the trendline is not quite relevant now for the technical traders. The key levels to watch out for are the September 15 high of $1,972 and September 8 low of $1,906.80.
A close above the $1,972 level will automatically invalidate the bearish lower highs on the daily charts and indicate a widespread bull trend recovery. On the other hand, a close below $1,906 will suggest that a bearish reversal has started.