Gold: Is 1,700 a new support? RSI falls to 4-year lows

Gold is seeking to establish support at the psychological $1,700/oz level, the lowest price since August 2021.

It is the fifth consecutive week that bullion has been in the negative, with prices now 17% down from their February highs.

The latest slump in the yellow metal was exacerbated by market repricing on Federal Reserve interest rate rises, as the U.S. inflation rate (USIRYY) surged to 9.1% year-over-year in June, its highest level in 41 years. This boosted the US dollar (DXY), which is now hovering parity against the euro (EUR/USD), and put pressure on the short end of the US yield curve, with the 2-year yield jumping to 3.15%.

Bearish pressure has given way to opportunistic buys on the recent slide to $1,700/oz. Looking at the 14-day RSI, gold has consistently been in oversold area for the last two weeks.

The 14-day RSI touched 23 today, the lowest level in approximately four years (August 2018), when gold prices plunged to $1,161/oz. From that point onward, gold began a two-year rally that led to a 77% cumulative gain. We'll see if there's a trend reversal this time, but such severe oversold levels may attract some revenge-seeking bulls.

Idea written by Piero Cingari, forex and commodities analyst at Capital.com