- Gold prices weathered the US Dollar’s rally to fresh 2019 highs this week; Gold had bottomed out by Tuesday.
- It appears that the US Dollar has lost the tug-of-war with Gold prices; it was unlikely that both would continue to move in the same direction.
- A return into a consolidation can underpin a “false breakout,” which, if so, may mean that Gold prices may have more room to run higher.
The Gold price outlook may be improving. With the US Dollar (via the DXY Index) falling after the Q1’19 US GDP report, Gold prices have been able to push to their highest level in two weeks. Although the US economy did shrug off early-year concerns that the slowdown was morphing into a recession, the internals of the GDP report simply weren’t that impressive: consumer consumption slowing; business investment falling; and housing formation contracting.
As such, despite the impressive headline figure, that there are indications that the US GDP report’s appeal is superficial. Now, traders may have little reason to think that the Federal Reserve will admit their dovish turn this year was wrong; instead, it seems very likely that Fed Chair Jerome Powell will use his press conference next week at the April FOMC meeting to reinforce the notion that rates will be on hold for the remainder of this year.
In the last Gold update it was noted that “global growth expectations are front and center once again (particularly out of Europe), while Brexit headlines have started to reemerge in the newswires. An EU-US trade war revolving around agriculture may be brewing. Gold bears may not be able to press their luck much further given these lingering concerns.” This sentiment has only been reinforced by Gold’s price action in the second half of this week.
Gold Price Technical Forecast: Daily Chart (April 2018 to April 2019) (Chart 1)
Earlier this week it was noted that “If the Gold technical outlook is going to revert from its bearish bias following the symmetrical triangle breakdown last week, the first necessary condition would be to get back above one key level: the daily 8-EMA at 1279. In the process of doing so, Gold prices would return back above the early-January/initial 2019 low around 1276.51.”
These conditions have been met, and as such, the Gold price technical outlook has turned bullish in the short-term. A return into the triangle consolidation underscores a “false breakout” condition, which suggests that Gold prices may have more room to run higher. A close above the daily 21-EMA today (1286) would reinforce the near-term bullish outlook; a move back towards triangle resistance near 1300 would be eyed by the end of April.
IG Client Sentiment Index: Spot Gold Price Forecast (April 26, 2019) (Chart 2)
Spot Gold: Retail trader data shows 75.5% of traders are net-long with the ratio of traders long to short at 3.08 to 1. The number of traders net-long is 2.9% lower than yesterday and 5.4% lower from last week, while the number of traders net-short is 11.5% lower than yesterday and 8.2% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Spot Gold-bearish contrarian trading bias.
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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