Gold Price Prediction – Prices Turn Lower as PBOC Eases Rates

Gold prices moved lower on Monday and riskier assets rallied following news over the weekend that the Chinese central bank, the People’s bank of China planned to adjust its monetary policy. The central bank unveiled a key interest rate reform which will assist in lower borrowing costs for companies and support a slowing economy.

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Technical Analysis

Gold prices dropped 1.1% on Monday as the safe haven bid evaporated. Prices are coming off a 6-year high, and are poised to test target support near an upward sloping trend line that comes in near 1,440. Resistance is seen near former support near the 10-day moving average at 1,503. Short term momentum remains negative as the fast stochastic generated a crossover sell signal in overbought territory and continues to have a downward trajectory. The current reading on the fast stochastic is 81 above the overbought trigger level of 80 which could foreshadow a correction. Medium-term momentum turning negative as the MACD (moving average convergence divergence) histogram is printing in the black with a declining trajectory. The MACD is poised to generate a crossover sell signal.

Chinese Central Bank Easing Rates

The PBOC, The People’s Bank of China (PBOC) said it will improve the mechanism used to establish the loan prime rate in a move to further lower real interest rates for companies. The move underscores the government’s attempts to use reforms to support a slowing economy. The central bank will improve the efficiency of interest rate transmission, and lower financing costs which should help buoy economic growth. Chinese banks’ new LPR quotations will be based on rates of open market operations, and the national interbank funding center will be authorized to publish the rate. The central bank said five-year and longer tenors will be added to the existing one-year LPR, which will help banks set rates on long-term loans such as mortgages.