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Gold Price Forecast: Subdued Rebound Keeps Bearish Trend Intact

Gold Price Forecast: Subdued Rebound Keeps Bearish Trend Intact

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Gold Talking Points

The recent rebound in gold appears to be losing steam as it largely preserves the range-bound price action from earlier this week, and the broader outlook for the precious metal remains tilted to the downside as both price and the Relative Strength Index (RSI) preserve the bearish formations from earlier this year.

Image of daily change for major currencies

Gold Price Forecast: Subdued Rebound Keeps Bearish Trend Intact

Image of daily change for gold prices

Gold prices are back under pressure, with the U.S. dollar gaining ground against its major counterparts, and the precious metal may continue to consolidate over the remainder of the week as market attention turns to the Federal Open Market Committee (FOMC) interest rate decision on August 1.

Image of Fed Fund Futures

Even though the FOMC is widely expected to keep the benchmark interest rate on hold, Chairman Jerome Powell & Co. are likely to implement higher borrowing-costs over the coming months as officials warn ‘gradually returning interest rates to a more normal level as the economy strengthens is the best way the Fed can help sustain an environment in which American households and businesses can thrive.’

In turn, a batch of hawkish comments may sap the appeal of gold as the FOMC appears to be on track to further embark on its hiking-cycle, and growing expectations for four rate-hikes in 2018 may reinforce a bearish outlook for gold prices on the back of expectations for higher U.S. Treasury yields.

Image of IG Client Sentiment for gold

Moreover, retail sentiment remains stretched as the IG Client Sentiment Report shows 86.2% of traders are net-long gold, which compares to 85.8% from earlier this week, while the ratio of traders long to short stands at 6.26 to 1. The number of traders net-long is 1.3% higher than yesterday and 3.0% higher from last week, while the number of traders net-short is 14.2% lower than yesterday and 9.2% lower from last week.

The ongoing skew in retail positioning offers a contrarian view to crowd sentiment, with the broader outlook for gold still tilted to the downside both price and the RSI continue to track the bearish trends from earlier this year.

Gold Daily Chart

Image of daily chart for gold prices
  • Gold prices may continue to face range-bound conditions as the bearish formations remain intact, with the lack of momentum to test the $1246 (23.6% expansion) to $1249 (38.2% retracement) region raising the risk of a move back towards the monthly-low ($1211).
  • Need a break/close below the Fibonacci overlap around $1210 (50% retracement) to $1219 (61.8% retracement) to open up the downside targets, with the next region of interest coming in around $1198 (38.2% expansion).

For more in-depth analysis, check out the Q3 Forecast for Gold

Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

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