Gold Price Prediction – Gold Trades Sideways Despite Despite Rally in the Greenback

Gold prices move higher on Tuesday, despite a rally in the greenback, following an unexpected dovish Bank of Japan interest rate decision.  Gold appears to be stuck in a tight trading range, unable to pierce through resistance near the 10-day moving average near $1,225.  Since gold is priced in dollars, a stronger U.S. currency generally equates to headwinds for the yellow metal.  There also appears to be strong support near the July lows and an upward sloping trend line that connects the lows in July 2017 to the lows in July 2018 and comes in near 1,225.  A break of this level would lead to a test of the July 2017 lows at 1,204.

The sideways price action has generated a crossover buy signal in both the MACD (moving average convergence divergence) index and the fast stochastic. Both are momentum indicators that describe accelerating and decelerating momentum. The MACD crossover occurs when the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line).

The gold forward curve moved in favor of the greenback. This interest rate curve tends to follow both the differential between the U.S. and bund 10-year curve as well as the differential between the U.S. and Japanese government bond curve. With the Bank of Japan keeping rates unchanged and signally that they do not believe they will be able to get inflation to their target of 2% until March of 2021, the yield differential between the U.S. and the Japanese government bond moved in favor of the U.S. bond, making the dollar more attractive and generating headwinds for gold prices.  With the USD/JPY making a move higher, it pulled the entire dollar index higher, which could generate a further breakout in the greenback. Traders now await Wednesday ISM manufacturing report as well as Friday’s U.S. unemployment report.