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Gold Price Range Vulnerable to Fresh Series of Lower Highs

Gold Price Range Vulnerable to Fresh Series of Lower Highs

David Song, Strategist

Gold Talking Points

Gold prices are under pressure even as the International Monetary Fund (IMF) reduces its global growth forecast, and the current environment may continue to sap the appeal of the precious metal especially as the U.S. dollar appreciates against most of its major counterparts.

Image of daily change for financial markets

Gold Price Range Vulnerable to Fresh Series of Lower Highs

Image of daily change for gold prices

Gold fails to catch a bid despite growing concerns surrounding the world economy, and the precious metal may ultimately snap the range-bound price action carried over from the previous month amid the failed attempt to test the September-high ($1213).

The recent rout in risk appetite has done little to boost the appeal of bullion even as global equity prices extend the decline from earlier this month, and market participants may continue to shun the precious metal as there appears to be no signs of a flight to safety.

With that said, the current environment may keep gold under pressure as the Federal Reserve appears to be on course to further embark on its hiking-cycle, and Fed Fund Futures may continue to reflect expectations for another 25bp rate-hike at the next quarterly meeting in December as the central bank largely achieves its dual mandate for full-employment and price stability.

Image of IG Client Sentiment for gold

At the same time, the IG Client Sentiment Report shows retail sentiment back at extremes as 89.1% of traders are net-long gold, with the ratio of traders long to short at 8.19 to 1. In fact, the percentage of traders net-long is now its highest since August 6 when bullion traded near $1213. The number of traders net-long is 12.3% higher than yesterday and 4.1% higher from last week, while the number of traders net-short is 26.8% lower than yesterday and 30.5% lower from last week.

The persistent skew in retail interest provides a contrarian view to crowd sentiment, with the string of failed attempts to test the September-high ($1213) raising the risk for further losses as the precious metal appears to be on its way to threaten the range-bound price action carried over from the previous month. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Gold Daily Chart

Image of gold daily chart
  • Near-term outlook for gold remains mired by the lack of momentum to push back above the $1210 (50% retracement) to $1219 (61.8% retracement) region, with the $1172 (61.8% retracement) to $1180 (23.6% expansion) zone on the radar as the precious metal initiates a fresh series of lower highs.
  • A break/close below the stated region raises the risk for a run at the 2018-low ($1160), which sits just above the Fibonacci overlap around $1156 (61.8% retracement) to $1158 (38.2% expansion), with the next downside area of interest coming in around $1141 (50% expansion).

For more in-depth analysis, check out the Q4 Forecast for Gold

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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.

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