Gold Signals Bearish Outlook after FOMC Minutes

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Gold Signals Bearish Outlook after FOMC Minutes

Gold (XAU/USD) fell during the 8/20 session, pulled down after the FOMC minutes fueled USD-strength across the board. The FOMC minutes revealed that voting members are in agreement in phasing out QE, and getting ready for a rate hike. The improvement in the labor market is impressing on Fed members so there is a definitely possibility that rate hikes will be sooner than the previously projected mid-2015 timeline rather than later. This prospect is USD-bullish, and gold priced in the US Dollar fell as you can see on the 4H chart below.

Gold (XAU/USD) 4H Chart 8/21
gold 8/21 4h chart

(click to enlarge)

The dip in gold price today clearly broke below the August rising trendline support, thus signaling a bearish outlook at least in the short-term. The 4H RSI was pulled down below 30, which is a sign that bearish momentum is developing this time-frame. The 1280 August low is low in sight.

When we look at the daily chart, we can see that the bearish outlook might be limited.  Right below the 1280 handle, there is a rising trendline, part of a triangle pattern that has been forming throughout the year.

Gold (XAU/USD) Daily Chart 8/20
gold 8/20 daily chart

(click to enlarge)

It should also be noted that the daily RSI is now back to 40, testing the bullish momentum that was established during the June rally. If the RSI breaks below 40, we can say that the bullish momentum was lost. If Gold also breaks below 1270, then we can start looking for a bearish outlook. For now it is bearish in the near-term and short-term, but sideways in the medium-term – that is unless there is a break below 1270. Note that a previous support area in April and May is also around 1270, making that a key support level.

A break below 1270 then opens up the 1240 support pivot and the 1182.35 low on the year below that.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.