Gold Price Forecast: Bear reversal on monthly chart, Fed rate hike pause priced in
New York (March 30) Gold is on track to end March with a 1.5 percent loss, having priced in the Fed rate hike pause in the previous three months and could suffer a deeper drop in April.
The US central bank kept rates unchanged earlier this month and signaled no rate hike for the rest of the year. Even so, the zero-yielding safe-haven metal is reporting a monthly loss.
That is hardly surprising given the market first began dialing up the heat on the Fed to pause rate hikes back in November. Interestingly, the metal picked up a strong bid near $1,200 on Nov. 13 and was trading at $1,346 by Feb. 20. Put simply, the rate pause signaled by the Fed earlier this month was priced in by the markets in three months to Feb. 20.
So, the US dollar – gold's biggest nemesis – may remain better bid in April unless the Eurozone economic conditions improve significantly, leading to EUR/USD rally and broad-based USD weakness and/or US economic conditions deteriorate enough to warrant a 2019 rate cut.
As a result, the path of least resistance for gold appears to be on the downside. Validating that argument is the bearish reversal on longer-duration charts.
As can be seen, gold's rally from the November lows ran out of steam near the crucial 100-month moving average (MA) in February.
That average has proved a tough nut to crack multiple times since December 2016. Note how persistent failure to close above the 100-month MA in four months to April 2018 was followed by a sharp sell-off to $1,160.
Notably, gold created a candle with a long upper shadow in February, an early warning of a bearish reversal. However, traders usually wait for confirmation in the form of a strong follow-through, preferably a close below the candle's low.
Well, prices are set to end March convincingly below the February low of $1,302. Thus, the yellow metal may face strong selling pressure in April.
The bearish outside reversal candle seen in the above chart indicates the bounce from the recent low of $1,281 ended at $1,324 and the bears have likely regained control.
With the bearish outside reversal candle, gold has also established a lower high at $1,324. Further, the 5- and 10-week moving averages (MAs) have produced a bearish crossover.
Meanwhile, the 14-week relative strength index (RSI) has charted both the lower high and lower low and is pointing south.
As a result, the rising trendline support, currently near $1,250, could come into play in the second quarter.
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•Having priced in the Fed rate hike pause in three months to February, gold risks falling back to $1,250 in the second quarter.
•The bearish view would be invalidated if prices find acceptance above $1,324 (March high).
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