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Gold (XAUUSD) Price - Pressure on Supportive Trendline Increases as Trading Range Narrows

Gold (XAUUSD) Price - Pressure on Supportive Trendline Increases as Trading Range Narrows

2020-09-08 09:30:00
Nick Cawley, Strategist
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Gold (XAU/USD) Analysis, Price and Charts

  • Gold may break its short-term trading range soon.
  • US real yields turn higher, weighing on gold.

The price of gold is starting to look heavy as it struggles to keep about the supportive trendline started in mid-March. The trend has offered firm support, especially during the mid-August sell-off but now the short-term downtrend is seemingly in control of price action. The two trendlines have met and a breakout is becoming more likely. This mixed to negative outlook is backed up by the latest IGCS retail positioning data.

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US real yields remain negative but are starting to slowly pick-up, a negative for the price of gold. While inflation expectations remain steady, US Treasury yields have moved slightly higher narrowing the gap between the two.

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Gold currently trades just below trend and is eyeing a further move which may bring short-term support between $1,900/oz. and $1,910/oz. into play. While the US dollar has been one of the main drivers of gold recently, the upcoming ECB meeting (Thursday 12:45 UK) and the Euros reaction, may also drive action. The ECB may well opine about further fiscal stimulus in the single-block, weakening the Euro, pushing the value of the US dollar basket (DXY) higher. The Euro makes up around 57% of the basket and a stronger DXY will weigh on the price of gold.

The daily chart shows gold moving towards oversold territory and while this may add a layer of support, the precious metal is now, just, below both the 20- and 50-day moving averages, a negative market signal.

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Gold Daily Price Chart (January – September 8, 2020)

Gold (XAUUSD) Price - Pressure on Supportive Trendline Increases as Trading Range Narrows
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IG client sentiment data shows 81.61% of traders are net-long with the ratio of traders long to short at 4.44 to 1.The number of traders net-long is 4.86% higher than yesterday and 8.46% higher from last week, while the number of traders net-short is 11.51% higher than yesterday and 6.91% lower 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 less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed Gold trading bias.

What is your view on Gold – are you bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

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

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