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Fundamental Forecast for Gold:Mixed

  • The rout in US equities continues to spur safe haven demand for the precious metal
  • Equity volatility has shown little sign of abating so gold is poised to remain a beneficiary
  • Bearish RSI and sentiment data muddy the safe-haven asset’s outlook

Gold Price Rides on Equity Stability

Gold staged another formidable rally this week as US equities remained under pressure. The precious metal has enjoyed the attention of investors looking to hedge their portfolio which has resulted in a climb of roughly $50 in October. On a percentage basis, the gain translates to slightly over 4. Friday’s bounce prompted gold to reach a three-month high above $1240.

Gold Price Chart Daily, October 2017 - October 2018

Gold Price Outlook Tied to Equity Performance, S&P500 Rebound

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

With a continuous demand for gold in recent weeks, RSI has remained on the upper half of the range and nears overbought levels. Typically this is a bearish development but given the fundamental and technical landscape for equities, it could be argued a high RSI should be discounted somewhat. While it may be discounted, it should not be discarded and thus the high RSI should be a sign of caution for gold bulls.

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

Similarly, IG’s client data reveals retail traders remain overwhelmingly net-long. Often used as a contrarian indicator, the large percentage of traders net-long provides another headwind for gold bulls and further complicates the outlook.

Gold Price Outlook Tied to Equity Performance, S&P500 Rebound

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

Retail trader data shows 82.2% of traders are net-long with the ratio of traders long to short at 4.63 to 1. The number of traders net-long is 6.8% lower than yesterday and 3.0% lower from last week, while the number of traders net-short is 5.1% higher than yesterday and 12.1% lower from last week.

View our Economic Calendar for central bank rate decisions and other important data releases.

Unlike the past two weeks, next week has a loaded economic calendar. The Bank of Japan and the Bank of England have their respective rate decisions while Canada, Mexico and the Eurozone are due to release Q3 GDP figures. The week also has a smorgasbord of other high and medium-importance events that will weigh on inflation, rate outlooks, equity performance and therefore gold’s performance.

Given the bullish leaning for gold from the equity rout but opposing signals from RSI and retail sentiment data, gold’s outlook is difficult to nail down. Coupled with an avalanche of economic data to be released next week, the forecast for gold is mixed.

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

Contact Peter on Twitter at @PeterHanksFX

Improve your gold trading knowledge with our regulargold forecastand guide to Traits of Successful Traders.And if you’re looking for more information on gold trading, you might be interested in learning about thegold-silver ratio.

Other Weekly Fundamental Forecast:

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Australian Dollar Forecast – Australian Dollar Might Get Some Respite If Inflation Holds Up

Oil Forecast – Crude Oil Set For Third Weekly Decline Chasing Stock Markets Lower

Canadian Dollar Forecast – USD/CAD Rate Threatens Bearish Trend Ahead of U.S. NFP Report

British Pound Forecast – Brexit, Budget and the Bank of England