Gold Price Forecast: Pinned Near Trendline Resistance

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Gold Price Outlook:

  • Gold costs have edged greater the previous few days, however a significant technical breakout has but to transpire.
  • Fed Chair Jerome Powell’s speech on the Jackson Hole Economic Policy Symposium ought to assist spur volatility on Friday
  • According to the IG Client Sentiment Index, gold costs have a combined bias within the near-term.

Quiet Before the Storm?

Gold costs began the week on smooth footing however have since recovered round +1.7% from their lows forward of the Federal Reserve’s Jackson Hole Economic Policy Symposium, and most essential, Fed Chair Jerome Powell’s speech on Friday. Price motion throughout asset courses – a rebound in US equity markets and a slightly weaker US Dollar – counsel that merchants are positioning for the remarks to be much less hawkish than initially feared.

That mentioned, the upward advance by gold costs merely brings bullion again to the place they had been buying and selling per week in the past, acquainted territory close to the descending trendline from the March and April swing highs, which have been a magnet for value motion all through August. No significant technical breakout or breakdown has been achieved, placing Fed Chair Powell’s speech in focus as a doubtlessly potent catalyst for gold costs in the previous couple of days of the month.

Gold Volatility Drops, Gold Prices Rebounds

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 better uncertainty round money flows, dividends, coupon funds, and so forth. – gold tends to profit in periods of upper volatility. Gold volatility continues to fall, however in context of the weaker US Dollar, its not essentially proving a headwind for gold costs within the near-term.

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 -0.98 whereas the 20-day correlation is +0.12. One week in the past, on August 18, the 5-day correlation was -0.64 and the 20-day correlation was -0.65.

Gold Price Rate Technical Analysis: Daily Chart (August 2021 to August 2022) (Chart 2)

Gold Price Forecast: Pinned Near Trendline Resistance - Levels for XAU/USD

Earlier this week it was noticed that “a return to the yearly lows set around 1680 is not of the question, even though a significant bearish breakout appears unlikely in the near-term.” The latter proved to be true, with gold costs avoiding a sharper flip decrease, as an alternative returning to the descending trendline from the March and April swing highs.

Momentum is bettering however stays weak, nevertheless, with gold costs above their day by day 5-EMA however beneath their day by day 8-, 13-, and 21-EMAs. The EMA envelope stays in bearish sequential order. Daily MACD remains to be trending decrease beneath its sign line, though day by day Slow Stochastics have exited oversold territory. Resolution across the multi-month descending trendline, sparked by Fed Chair Powell’s Jackson Hole speech, will assist make clear the near-term buying and selling bias: both again in the direction of the August excessive at 1807.96; or again to the yearly low at 1680.94.

Gold Price Technical Analysis: Weekly Chart (October 2015 to August 2022) (Chart 3)

Gold Price Forecast: Pinned Near Trendline Resistance - Levels for XAU/USD

The longer-term view stays 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 25, 2022) (Chart 4)

Gold Price Forecast: Pinned Near Trendline Resistance - Levels for XAU/USD

Gold: Retail dealer information exhibits 81.43% of merchants are net-long with the ratio of merchants lengthy to quick at 4.38 to 1. The variety of merchants net-long is 4.14% decrease than yesterday and 4.05% greater from final week, whereas the variety of merchants net-short is 1.02% decrease than yesterday and 24.33% decrease 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 modifications offers us an additional combined Gold buying and selling bias.

— Written by Christopher Vecchio, CFA, Senior Strategist





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