Gold Price Outlook:
- Gold costs have reversed rapidly in latest days amid a resurgent US Dollar and rising US Treasury and actual yields.
- Fed Chair Jerome Powell’s speech on the Jackson Hole Economic Policy Symposium could assist rekindle the notion of a hawkish central financial institution.
- According to the IG Client Sentiment Index, gold costs have a blended bias within the near-term.
Fundamentals Turn into Headwind
Gold costs have been struggling by the hands of acquainted basic foes from earlier this yr: a resurgent US Dollar (by way of the DXY Index) and the mix of rising US Treasury yields and US actual yields. In truth, over the previous three weeks, the US 10-year actual yield has moved up from 9-bps to 40-bps at the moment; traditionally, rising US actual yields are correlated with detrimental returns for gold costs.
With the Federal Reserve’s Jackson Hole Economic Policy Symposium later this week anticipated to carry forth an aggressive hawkish tone from Fed Chair Jerome Powell – if solely to right the market’s notion of the trail of rate of interest hikes within the wake of the July Fed assembly – gold costs could stay below strain for the near-term time horizon.
Gold Volatility Rebounds, Gold Prices Drop
Historically, gold costs have a relationship with volatility in contrast to different asset courses. While different asset courses like bonds and shares don’t like elevated volatility – signaling higher uncertainty round money flows, dividends, coupon funds, and so forth. – gold tends to learn in periods of upper volatility. The drivers of the uptick in gold volatility – larger US Treasury and actual yields and a stronger US Dollar – are doing no favors for gold costs, nonetheless.
GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (August 2021 to August 2022) (Chart 1)
Gold volatility (as measured by the Cboe’s gold volatility ETF, GVZ, which tracks the 1-month implied volatility of gold as derived from the GLD possibility chain) was buying and selling at 16.62 on the time this report was written. The 5-day correlation between GVZ and gold costs is -0.92 whereas the 20-day correlation is -0.44. One week in the past, on August 15, the 5-day correlation was +0.34 and the 20-day correlation was -0.87.
Gold Price Rate Technical Analysis: Daily Chart (August 2021 to August 2022) (Chart 2)
Last Monday it was famous that “gold prices have reversed sharply, trading back into their EMA envelope and falling back to former resistance now support, the descending trendline from the March and April swing highs…a drop below the daily 21-EMA would constitute a failed bullish breakout, putting focus on the August low at 1754.35.” Gold costs closed beneath their every day 21-EMA on Wednesday, establishing the accelerated decline seen in latest days.
The momentum profile has turned bearish. Gold costs are beneath their every day 5-, 8-, 13-, and 21-EMA envelope, which is now in bearish sequential order. Daily MACD is falling via its sign line, whereas every day Slow Stochastics are again in oversold territory. A return to the yearly lows set round 1680 shouldn’t be of the query, regardless that a big bearish breakout seems unlikely within the near-term.
Gold Price Technical Analysis: Weekly Chart (October 2015 to August 2022) (Chart 3)
The longer-term view is unchanged: “a double top remains in place, but a quadruple bottom around 1680 warrants a reconsideration: a massive sideways range between 1680 and 2075 may have formed. A bounce from 1680 sees 1800 as the first area before resistance is found. The sudden shift in the environment suggests that the daily timeframe (and lower, like the 4-hour timeframe) will be better suited to pay attention to over the coming days/weeks as it will take a long time for technical indicators to evolve on the weekly timeframe.”
IG CLIENT SENTIMENT INDEX: GOLD PRICE FORECAST (August 22, 2022) (Chart 4)
Gold: Retail dealer knowledge reveals 79.08% of merchants are net-long with the ratio of merchants lengthy to brief at 3.78 to 1. The variety of merchants net-long is 0.58% larger than yesterday and 1.45% larger from final week, whereas the variety of merchants net-short is 4.19% larger than yesterday and 1.20% larger from final week.
We usually take a contrarian view to crowd sentiment, and the actual fact merchants are net-long suggests Gold costs could proceed to fall.
Positioning is much less net-long than yesterday however extra net-long from final week. The mixture of present sentiment and up to date adjustments provides us an extra blended Gold buying and selling bias.
— Written by Christopher Vecchio, CFA, Senior Strategist