Gold Price Rebound Brings Test of 50-Day SMA

Gold Price Outlook

The price of gold appears to be recovering after taking out the April low ($1950), but failure to trade back above the 50-Day SMA ($1992) may undermine the recent rebound in the precious metal as the moving average no longer reflects a positive slope.

Gold Price Rebound Brings Test of 50-Day SMA

The price of gold trades to a fresh weekly high ($1978) while longer-term US Treasury yields slip to fresh weekly lows, and the precious metal may stage a larger rebound as Federal Reserve Governor Philip Jefferson, a permanent voting-member on the Federal Open Market Committee (FOMC), warns that ‘higher interest rates and lower earnings could test the ability of businesses to service debt.’

While speaking at the Annual International Conference on Policy Challenges for the Financial Sector, Governor Jefferson pointed out that ‘a decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,’ but the US Non-Farm Payrolls (NFP) report may push the Fed to pursue a more restrictive policy as the update is anticipated to show another rise in employment.

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FOREX.com Economic Calendar

The US economy is projected to add 190K jobs in May while Average Hourly Earnings are expected to hold steady at 4.4% during the same period, and evidence of a tight labor market may drag on the price of gold as it raises the Fed’s scope to further combat inflation.

However, a weaker-than-expected NFP print may encourage the Fed to pause the hiking-cycle as Governor Jefferson argues that ‘skipping a rate hike at a coming meeting would allow the Committee to see more data before making decisions about the extent of additional policy firming,’ and the price of gold may continue to retrace the decline from the previous month should the development dampen expectations for higher interest rates.

With that said, the price of gold may stage a larger rebound ahead of the next Fed rate decision on June 14 as it trades to a fresh weekly high ($1978), but failure to trade back above the 50-Day SMA ($1992) may undermine the recent rebound in bullion as the moving average no longer reflects a positive slope.

Gold Price Chart – XAU/USD Daily

Chart Prepared by David Song, Strategist; Gold Price on TradingView

• The price of gold failed to defend the April low ($1950) as it registered a fresh monthly low ($1932) during the final days of May, but the precious metal stages a three-day advance following the failed attempt to push below the $1928 (23.6% Fibonacci retracement) to $1937 (38.2% Fibonacci extension) region.
• The move above the $1973 (78.6% Fibonacci retracement) to $1977 (50% Fibonacci extension) area may lead to a test of the 50-Day SMA ($1992), with the next region of interest coming in around $2018 (61.8% Fibonacci extension) to $2020 (78.6% Fibonacci extension).
• However, failure to trade above the moving average may undermine the recent rebound in the price of gold as the indicator no longer reflects a positive slope, with a move below the $1973 (78.6% Fibonacci retracement) to $1977 (50% Fibonacci extension) area bringing the $1928 (23.6% Fibonacci retracement) to $1937 (38.2% Fibonacci extension) region back on the radar.

Additional Resources:

USD/JPY Rally Fizzles with RSI Reversing Ahead of Overbought Zone

AUD/USD Breaches March Low to Bring November Low on Radar

--- Written by David Song, Strategist

Follow me on Twitter at @DavidJSong