Never miss a story from Peter Hanks

Subscribe to recieve updates on publications
Please enter valid First Name
Please fill out this field.
Please enter valid Last Name
Please fill out this field.
Please enter valid email
Please fill out this field.
Please select a country

I’d like to receive information from DailyFX and IG about trading opportunities and their products and services via email.

Please fill out this field.

Your Forecast Is Headed to Your Inbox

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk.

Your demo is preloaded with £10,000 virtual funds, which you can use to trade over 10,000 live global markets.

We'll email you login details shortly.

Learn More about Your Demo

You are subscribed to Peter Hanks

You can manage your subscriptions by following the link in the footer of each email you will receive

An error occurred submitting your form.
Please try again later.

Please add a description for the image.

Fundamental Forecast for Gold:Bearish

  • The rout in US equities finally spurred safe haven demand for the precious metal
  • Gold will likely look to equity sentiment to drive price action next week barring significant geopolitical developments
  • The metal now trades above the downtrend that began in mid-April which now acts as support

Gold Price Rides on Equity’s Rebound

Gold posted a huge rally this week. Propelled by safe haven demand, the precious metal rocketed through multiple key resistance levels and now trades around $1220. Last week, we mentioned the possibility of safe haven demand being brought about by an equity rout. Unsurprisingly, a 1,368 point drop in the Dow over two days was enough to create appeal for the asset’s key attribute.

Gold Price Chart Hourly, October 5th- October 12th

Gold Price Outlook Finally Impacted by Safe Haven Demand

Looking to learn how to trade gold? Check out our Gold Trading Guide.

Although gold benfitted from safe haven demand this week, it may be short lived. Friday saw a mixed trading day for US equities result in a green close. In Europe, equity losses were minimal. These developments suggest equities are regaining their feet and thus the drastic flight to safety will wane. In the upcoming week, equities will be the key deciding factor for gold’s performance and they seem to be normalizing.

With that in mind, there were some other fundamentally bearish developments that flew under the radar this week. Overshadowed by plummeting equities, US CPI data was released and fell short of expectations. Although the miss is minor, it showcases lower than expected inflation. Lower inflation could weigh on gold’s use as an inflation hedge and thus act as a headwind for gold’s price.

Gold Price Outlook Finally Impacted by Safe Haven Demand

View our Economic Calendar for US CPI and other important data releases.

Gold Price Chart Daily, March – Present

Gold Price Outlook Finally Impacted by Safe Haven Demand

As we look to the technical picture, the equity rout generated enough demand to push gold above trend line resistance from mid-April. Moving forward, that resistance should act as support. More immediate support can be found at 1213.55, the 50% fib level from December 2015. Areas of resistance are less immediate with a minor Fibonacci level at $1239.

To gain more insight to how we use sentiment to power our trading, join us for our weekly Trading Sentiment webinar.

Gold Price Outlook Finally Impacted by Safe Haven Demand

View how our clients are positioned on gold and other assets with IG Client Sentiment Data.

Retail trader data shows 89.5% of clients are net-long with the ratio of traders long to short at 8.52 to 1. The number of traders net-long is 11.4% higher from last week and traders net-short is 29.7% lower than last week. Since we typically take a contrarian view to crowd sentiment, it could suggest gold is headed lower next week.

With another drastic equity collapse unlikely, disappointing CPI figures, and bearish sentiment data, it would seem gold is due to retrace some of the gains it posted this week. For these reasons, the fundamental forecast for gold in the upcoming week is bearish.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact Peter on Twitter at @PeterHanksFX

DailyFX forecasts on a variety of currencies such as the US Dollar or the Yen are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introduction to the Forex market, check out our New to FX Guide.

Other Weekly Fundamental Forecast:

New Zealand Dollar Forecast - New Zealand Dollar May Look Past CPI, Focus on Stocks, USD & Fed

Japanese Yen Forecast – Speculation for Above-Neutral Fed Rate to Curb USD/JPY Weakness

Oil Forecast – Oil Demand Forecasts Cut After Risk Rout Leads to Worst Week Since May

British Pound Forecast – Heightened Risk Doesn't Reward Position-Taking This Week

US dollar Forecast – US Dollar May Find Renewed Strength in FOMC Meeting Minutes