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Gold Talking Points

The recent decline in gold appears to be stalling ahead of the July 2017-low ($1207) as the People’s Bank of China (PBoC) takes additional steps to support the economy, but the recent series of lower highs & lows keeps the downside targets on the radar especially as the bearish momentum appears to be gathering pace.

Image of daily change for major financial markets

Gold Price Forecast: Post-NFP Rebound Aligns with Bearish Sequence

Image of daily change for gold prices

Bullion bounces back from a fresh 2018-low ($1204) as China’s central bank adjusts a reserve requirement for financial institutions, with the PBoC specifically targeting trading in FX forwards by removing the 20% ratio, and it seems as though the region will take additional steps to cushion the real economy amid the growing threat of a trade war with the United States.

Keep in mind, current market themes may continue to drag on gold as recent comments from the Federal Reserve suggest the central bank will continue to normalize monetary policy over the coming months, and the hawkish forward-guidance for monetary policy may continue to heighten the appeal of the U.S. dollar as Chairman Jerome Powell & Co. appear to be on track to implement four rate-hikes in 2018.

Image of IG client sentiment

At the same time, the IG Client Sentiment Report shows retail sentiment holds near recent extremes, with 87.6% of traders still net-long the precious metal, with the ratio of traders long to short at 7.06 to 1. The update shows the number of traders net-long is 2.4% lower than yesterday and 0.1% lower from last week, while the number of traders net-short is 0.9% lower than yesterday and 12.2% lower from last week.

The ongoing skew in retail positioning continues to offer a contrarian view to crowd sentiment, with the recent string of lower highs & lows in keeping the downside targets on the radar as both price and the Relative Strength Index (RSI) retain the bearish formations carried over from earlier this year.

Gold Daily Chart

Image of gold daily chart
  • Despite the rebound, gold prices remain at risk for further losses, with failure to hold above the Fibonacci overlap around $1210 (50% retracement) to $1219 (61.8% retracement) raising the risk for fresh 2018 lows as the bearish momentum from earlier this year appears to be reasserting itself.
  • With that said, will keep a close eye on the RSI, with a break of trendline support paired with a break below 30 raising the risk for a further decline in gold prices, with the next downside region of interest coming in around $1198 (38.2% expansion) followed by the overlap around $1172 (61.8% retracement) to $1177 (78.6% retracement).

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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Additional Trading Resources

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.