Gold price this month and beyond: the yellow metal should continue to move higher
With the Fed’s unexpected rate cut and coronavirus continued spread, what is the gold price prediction for March?
Gold prices have been on a rollercoaster ride after forming an outside week last week. This is generally considered a reversal pattern, and gold prices have been facing headwinds. During the last Friday of February, gold prices were hammered, but appear to have stabilised and look to move higher.
The Fed surprised the markets in early March with an unexpected rate cut, and though a cut was priced in the timing was significant. The US 10-year yield hit a fresh all-time low at 1.02 per cent and is likely to continue to decline.
It’s all about the coronavirus
In the last week of February, equity markets tumbled with the S&P 500 large-cap index dropping 12 per cent within one week. Equity traders exited positions based on the likelihood that the global economy will slow and spill over into the United States possibly creating a recession.
The issue is a biological problem and it might be very difficult for the Fed to spur demand. The consumer at the moment in the US seems stable, but if the virus begins to spread at a rapid rate, people will not go shopping and will hideout waiting for the virus to die off. The Fed is also trying to inspire confidence, which is a question that still needs to be addressed.
Fed’s interest rate cut: what happened
The Fed announced that it would cut its Fed fund rate by 50-basis surprising the markets and initially buoying riskier assets. Gold prices surged higher as the dollar tumbled against most major currencies.
The market has already priced in a 100 per cent chance of a 25-basis point cut in March and had priced in a total of 75-basis points of lower rates by the end of 2020. While the Fed said that they saw strong underlying growth, they stated that they were concerned about a slowdown that could take place as the virus spreads throughout the United States.
The Fed sees further risks to the outlook of the economy, based on the spread of the virus. Another way to look at it is that equity investors sent a message to the Fed and they heard it loud and clear. The G7 earlier said that they will use all tools, including fiscal policy. Fed Chair Powell said that this was out of their lane to discuss what would be needed for fiscal policy.
Gold price technical analysis
The weekly charts show that gold prices whipsawed but remain within a 3-week range. Prices will need to close above $1,690, for the markets to consider gold prices to be breaking out. Support is seen near the 10-week moving average at $1,582.
Short term momentum has turned negative as the fast stochastic generated a crossover sell signal in overbought territory. The sell signal will likely reverse on a weekly higher close. Medium-term momentum is positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory which points to further price rises. The RSIK (relative strength index) edged higher but remains below the overbought trigger level of 70.
Gold price this month: bottom line
With yields hitting fresh lows, and the dollar moving lower, gold prices should continue to trend higher. The Fed is poised to cut rates again, and this should continue to help buoy the price of the yellow metal.
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