Gold Relative Analysis Indicates An Oversold Condition

Gold has pulled back over the last few trading sessions and the Bollinger bands have narrowed (green rectangle). This would suggest an imminent expansion and a volatility increase. We note, that although Bollinger analysis is insightful with regard to volatility cycles it does not have much to say on price direction. An expansion with price maintaining its position within the lower blue and lower red bands will indicate a bearish expansion. However, relative to the recent bullish strength shown by the precious metal from April through to the beginning of June, the RSI does show that the recent pullback is oversold (orange rectangle). Thus, when the expansion of the Bollingers does happen, it may be that the price moves upwards towards the upper blue and upper red bands in a show of strength. Much of this is to be resolved on Wednesday when the Fed statement is released and Fed Chair Powell holds his press conference. Any hawkishness towards tapering is likely to support the dollar and keep pressure on the precious metal. However, if this hawkishness does not materialise, the normalisation of the relative oversold position is likely to play out.