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Gold

Fundamental Forecast for Gold:Bullish

Gold Talking Points:

Gold prices are lower for a sixth consecutive week with the precious metal plummeting nearly 2.6% to trade at 1179 ahead of the New York close on Friday. Despite the magnitude of the decline, prices are poised to close well off the weekly lows with our focus next week on a key technical support barrier.

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Gold at Critical Levels as USD Struggles / Broader Risk Assets Stutter

It was a volatile week for broader equity markets as rising concerns regarding deteriorating economic conditions in Turkey and the ongoing US / China tariff skirmish weighed on investor sentiment. At the same time, underlying strength in the US Dollar (which has kept pressure on gold) has started to ease with the DXY struggling ahead of slope resistance highlighted earlier this week. Will these mounting geo-political concerns and a waning greenback finally offer some support for the battered yellow metal?

For gold, the price ‘washout’ into fresh yearly lows (a 14% drop from the April highs) warrants attention as we head into next week’s annual Central Banking Symposium in Jackson Hole Wyoming. Despite the decline in price, gold has managed to hold just above a key pivot in price and the focus remains on a reaction off the recent lows registered this week

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Spot Gold IG Trader Sentiment

Gold Prices Test 2015 Uptrend Support Ahead of Jackson Hole
  • A summary of IG Client Sentiment shows traders are net-long Gold- the ratio stands at +5.36 (84.3% of traders are long) –bearish reading
  • Long positions are2.6% higher than yesterday and 9.3% lower from last week
  • Short positions are 3.7% higher than yesterday and 12.8% higher 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. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Spot Gold price trend may soon reverse higher despite the fact traders remain net-long.

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Gold Weekly Price Chart

Gold Prices Test 2015 Uptrend Support Ahead of Jackson Hole

In last week’s Gold forecast we noted that, “the immediate focus heading into next week is on the 1204 support pivot” with a break lower targeting, “subsequent objectives at the 50-line around ~1190s backed closely by a structural support confluence at 1175/80(area of interest for possible exhaustion / long-entries IF reached).”

Price registered a low at 1160 this week before rebounding sharply with gold poised to close the week above confluence support. Note that RSI is still deep in oversold territory and continues to highlight the downside threat from a momentum perspective. That said, we’ve been tracking this pitchfork since the 2015 lows and a break / close below 1171/75 would threaten the multi-year uptrend in prices. Weekly resistance now stands at 1204/09 with a breach above the median-line needed to suggest a more significant low is in place.

Bottom line: Gold price are testing long-term up-slope support - it’s make-or-break here. From a trading standpoint, we’re looking for a low while above this key zone next week. For a complete technical breakdown of the near-term Gold trading levels (daily & intraday), review this week’s XAU/USD Scalp Report.

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---Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michaelon Twitter @MBForex or contact him at mboutros@dailyfx.com