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Weekly Gold Price Forecast: Bullish Outlook Improves as Fed Eliminates Rate Hike Potential

Weekly Gold Price Forecast: Bullish Outlook Improves as Fed Eliminates Rate Hike Potential

2019-11-04 03:15:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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gold price, gold technical analysis, gold chart, gold price forecast, gold price chart

Weekly Fundamental Gold Price Forecast: Bullish

  • With G10 currencies’ central banks continuing to slash interest rates amid weak global growth conditions, gold prices have a strong fundamental base.
  • The Federal Reserve may be slowing its interest rate cut cycle, but Fed Chair Jerome Powell made clear that no rate hikes will be coming anytime soon – music to gold traders’ ears.
  • The IG Client Sentiment Index shows that gold prices in USD-terms (XAU/USD) may rally further in the days ahead.

See our long-term forecasts for Gold and other major currencies with the DailyFX Trading Guides.

Gold Prices Week in Review

As the calendar turned from October to November, not much changed for gold prices against most of the major currencies. Gold prices did not make much progress in October, and really, since hitting highs at the end of August and beginning of September against the majors.

Yet significant policy shifts by G10 currencies’ central banks – mainly, the Federal Reserve – should now draw traders’ attention to gold prices once more.

Of note, Gold continues to consolidate versus the commodity currencies, as XAU/AUD, XAU/CAD, and XAU/NZD have been consolidating in descending triangles since various points at the end of August: in AUD-terms (XAU/AUD) and CAD-terms (XAU/CAD), since hitting the all-time high on August 26; and in NZD-terms (XAU/NZD) since August 28.

This past week, XAU/CAD added 1.29%, but XAU/AUD fell by -0.54% and XAU/NZD fell by -0.58%.

Elsewhere, the gold price breakout may be getting started against some of the lower yielding, safe haven currencies. Gold in USD-terms (XAU/USD) added 0.65% and was able to break its downtrend from its September high, while gold in JPY-terms (XAU/JPY) gained 0.20% to post its fourth-highest close of all-time.

Gold Prices Rally After October Fed Meeting & US Jobs Report

Precious metals stabilized throughout October and were able to begin to turn higher late in the month, thanks in part to the Fed adding to its contemporary central banks’ efforts amid the ‘race to the bottom’ in interest rates.

While the Fed has been part of the cycle for some time, Fed Chair Powell upped the ante at the October Fed meeting by essentially closing off any path to an interest rate hike over the foreseeable future. The October US jobs report was an effective ‘nail in the coffin,’ insofar as a middling US labor market will give the Fed plenty of cover amid a soft inflation environment to keep a dovish rates bias for the foreseeable future. Which, quite frankly, is music for gold traders’ ears.

G10 Currencies’ Central Banks ‘Race to the Bottom’ with Rates

The fall in global bond yields amid persisting global growth concerns (why else would central banks be cutting rates?)underscores one of the key factors that tends to help gold prices rally: environments that produce falling real yields tend to be the most bullish.

Real yields are inflation-adjusted yields: for example, the US Treasury 10-year yield minus the headline inflation rate. Falling real US yields means that the spread between Treasury yields and inflation rates is decreasing. If gold yields nothing (no dividends, coupons, or cash flows), it would logically follow that it would benefit in environments when US real yields fell.

Top FX Events in Week Ahead

As is typical for the start of a new month, the forex economic calendar is saturated with significant economic data that will likely keep gold volatility elevated over the coming days – and in turn, provide opportunities for gold prices to gain legs under their recent turn higher.

On Tuesday, gold prices in AUD-terms (XAU/AUD) will be in focus with the October Reserve Bank of Australia’s meetingon Tuesday. With the Q3’19 New Zealand jobs report also due out on Tuesday, gold prices in NZD-terms (XAU/NZD) will experience significant volatility as well. On Friday, gold prices in CAD-terms (XAU/CAD) will take the spotlight amid the release of the October Canada jobs report.

The other XAU-cross that is likely to see significant movement over the coming week is gold in GBP-terms (XAU/GBP) thanks to the November Bank of England meeting. This BOE meeting will produce a new Quarterly Inflation Report (QIR), which tends to generate excess volatility relative to other BOE meetings during the post-June 2016 Brexit vote era.

GOLD PRICE VERSUS COT NET NON-COMMERCIAL POSITIONING: DAILY TIMEFRAME (NOVEMBER 2018 TO NOVEMBER 2019) (CHART 1)

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Looking at positioning, according to the CFTC’s COT for the week ended October 29, speculators increased their net-long gold futures positions to 276.5K contracts, up nearly 7% from the 259.1K net-long contracts held in the week prior. The market is still the most net-long since the week ending September 24, 2019 (which itself was a three-year high).

IG CLIENT SENTIMENT INDEX: GOLD PRICE FORECAST (NOVEMBER 1, 2019) (CHART 2)

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Gold: Retail trader data shows 62.22% of traders are net-long with the ratio of traders long to short at 1.65 to 1. The number of traders net-long is 2.40% lower than yesterday and 1.57% lower from last week, while the number of traders net-short is 0.26% higher than yesterday and 4.14% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests 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 gold price trend may soon reverse higher despite the fact traders remain net-long.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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