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Weekly Fundamental Gold Price Forecast: Time to Glitter Again? US NFP Friday

Weekly Fundamental Gold Price Forecast: Time to Glitter Again? US NFP Friday

Christopher Vecchio, CFA, Senior Strategist
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Weekly Fundamental Gold Price Forecast: Neutral

  • Gold prices have finally started to respond to a promising fundamental backdrop – record low US real yields, ongoing Federal Reserve stimulus efforts, and growing US deficits and debt.
  • But as always, the US labor market report can upend even the best laid plans of mice and men. July US nonfarm payrolls data are due out this coming Friday.
  • The IG Client Sentiment Index suggests that gold prices in USD-terms (XAU/USD) have a mixed trading bias.
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Gold Prices Week in Review

You’ve heard it before: gold prices tend to benefit during periods of loose monetary policy and expansive fiscal policy. It may be the case that this promising fundamental backdrop is being realized; this past week produced record low US real yields amid growing US deficits and debts, after all. The US Dollar’s losses (via the DXY Index) following the July FOMC meeting catered to a stronger environment for precious metals.

But gold’s gains in recent days were mostly a US Dollar-centric event: gold in USD-terms (XAU/USD)added+0.68%.Elsewhere, gold prices tipped ever-so-slightly into negative territory: gold in EUR-terms (XAU/EUR) dropped by -0.13%; gold inGBP-terms (XAU/GBP)contracted -0.45%; and gold in JPY-terms (XAU/JPY) fell by -0.15%.

While gold prices may be on the verge of turning higher on a broader basis, the evidence is just not there quite yet.

Economic Calendar Week Ahead

The first week of August, like most months, promises a busier economic calendar. While most of the focus remains on the US economy, there are still a number of data releases that could provoke greater volatility among several gold-crosses.

-On Monday, gold in EUR-terms (XAU/EUR) and gold in USD-terms (XAU/USD) will be in focus amid the plethora of PMI readings due across Europe and for the US;

- On Tuesday, gold in AUD-terms (XAU/AUD) is in the spotlight with the August Reserve Bank of Australia meeting on deck, while gold in NZD-terms (XAU/NZD) will have to contend with the 2Q’21 New Zealand employment change and unemployment rate report.

- On Thursday, gold in GBP-terms (XAU/GBP) may see a dose of volatility as the Bank of England meets for its August gathering, which will produce a new Quarterly Inflation Report (QIR).

- On Friday, gold in CAD-terms (XAU/CAD) and gold in USD-terms are in the spotlight with the dual July Canada employment report and the July US nonfarm payrolls report.

GOLD PRICE VERSUS COT NET NON-COMMERCIAL POSITIONING: DAILY TIMEFRAME (July 2020 to July 2021) (CHART 1)

Next, a look at positioning in the futures market. According to the CFTC’s COT data, for the week ended July 27, speculators increased their net-long gold futures positions to 195,972 contracts, up from the 182,721 net-long contracts held in the week prior. The futures market is the most net-long since the week of June 14, 2021.

IG CLIENT SENTIMENT INDEX: GOLD PRICE FORECAST (July 30, 2021) (CHART 2)

Gold: Retail trader data shows 77.84% of traders are net-long with the ratio of traders long to short at 3.51 to 1. The number of traders net-long is 1.85% lower than yesterday and 8.65% lower from last week, while the number of traders net-short is 10.36% lower than yesterday and 8.52% 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.

Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed Gold trading bias.

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

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

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