We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bullish
GBP/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bullish
Gold
Bullish
Oil - US Crude
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Bitcoin
Bearish
More View more
Real Time News
  • The spread of #coronavirus promises a global economic hit at a time when the global economy is perhaps especially ill-equipped to deal with one. Growth-correlated assets are vulnerable. Get your market update from @DavidCottleFX here: https://t.co/0If0Jw7c2P https://t.co/mph6z70XeF
  • The $JPY continues to struggle against the US Dollar but there seems little appetite to push USD/JPY much beyond a range which has tended to reassert itself since late last year. Get your market update from @DavidCottleFX here: https://t.co/iaVfPSuXy4 https://t.co/1QPhJmYlQv
  • The #Euro may bounce after hitting the lowest level in close to three years against the US Dollar. While the broader trend points firmly lower, selling pressure may be ebbing. Get your market update from @IlyaSpivak here: https://t.co/697SQ9j5FY https://t.co/6SEvwQyod8
  • GBP/CAD has broken below the September uptrend while EUR/CAD may be ending its consecutive 12 day decline with EUR/CHF approaching key resistance as NZD/CAD aims at November lows. Get your currencies update from @ZabelinDimitri here: https://t.co/GpRB7IKhTA https://t.co/hlHlGdhkHc
  • The $GBP recoiled from chart resistance against the US Dollar, setting the stage for prices to resume a bearish trend reversal triggered mid-January. Get your market update from @IlyaSpivak here:https://t.co/lVpyZkIfJt https://t.co/9oXusxs0Kg
  • The #Euro may have more room to fall versus its major peers such as the US Dollar, Japanese Yen and British Pound. What is the technical picture of EUR/USD, EUR/JPY and EUR/GBP? Get your market update from @ddubrovskyFX here: https://t.co/M6fLA9g3BK https://t.co/HMwQgr1WP5
  • The $USD’s aggressive rise versus ASEAN currencies such as the Singapore Dollar, Indonesian Rupiah, Malaysian Ringgit and Philippine Peso prolonged. What is the technical road ahead? Find out from @ddubrovskyFX here:https://t.co/RsFptNzODf https://t.co/u8meQUSsVG
  • $AUD broke critical range support against its US counterpart, suggesting deeper losses are ahead even after prices hit an 11-year low. Get your market update from @IlyaSpivak here:https://t.co/45YpJRjDYj https://t.co/zWAzaL78Sc
  • After negotiating a series of economic and geopolitical risks in 2019, the S&P 500 rounded out the year more than 30% higher. Will the stock market crash in 2020? Find out from @PeterHanksFX here: https://t.co/8KsjB9YkBB https://t.co/4ph9bdMxz9
  • Italy reports first death from coronavirus - BBG
Gold Prices Maintain Bull Flag Continuation Pattern - Key Levels for XAU/USD

Gold Prices Maintain Bull Flag Continuation Pattern - Key Levels for XAU/USD

2019-10-23 02:30:00
Christopher Vecchio, CFA, Sr. Currency Strategist
Share:

Gold Price Forecast Overview:

  • Uncertainty over the next steps in the Brexit process may be provoking uneasiness for traders of the British Pound, but not enough to spark a rally by gold prices.
  • Precious metals tend to underperform during periods of lower volatility as decreased uncertainty reduces the safe haven appeal of gold and silver. To this end, the 5-day correlation between GVZ and gold prices is 0.82, and the 20-day correlation is 0.42.
  • Changes in retail trader positioninggives us a bearish spotgold trading bias.

Looking for longer-term forecasts on Gold and Silver prices? Check out the DailyFX Trading Guides.

Uncertainty over the next steps in the Brexit process may be provoking uneasiness for traders of the British Pound, but otherwise, all is quiet on the western front. US equity markets continue to run higher amid a weaker US Dollar, thanks in part to perceived progress in the US-China trade war talks. Any efforts made to reduce friction between the world’s two largest economies likely reduces the need for G10 currencies’ central banks to deliver significantly lower interest rates in the near-term.

Gold Prices Boosted by Rising Gold Volatility

While other asset classes don’t like increased volatility (signaling greater uncertainty around cash flows, dividends, coupon payments, etc.), precious metals tend to benefit during periods of higher volatility. Heightened uncertainty in financial markets due to increasing macroeconomic tensions (like US-China trade war or the prospect of a no-deal, hard Brexit, for example) increases the safe haven appeal of gold and silver.

GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (November 2016 to October 2019) (Chart 1)

Gold Prices Maintain Bull Flag Continuation Pattern - Key Levels for XAU/USD

Gold volatility (as measured by the Cboe’s gold volatility ETF, GVZ, which tracks the 1-month implied volatility of gold as derived from the GLD option chain) has broken to its lowest level since the end of July, currently trading at 13.95. However, despite the plunge in gold volatility, gold prices have not followed. The 5-day correlation between GVZ and gold prices is 0.82, and the 20-day correlation is 0.42; four weeks ago, on September 24, the 5-day correlation was 0.97 and the 20-day correlation was 0.86.

Gold Price Technical Analysis: Daily Chart - Bull Flag/Descending Channel (October 2018 to October 2019) (Chart 2)

Gold Prices Maintain Bull Flag Continuation Pattern - Key Levels for XAU/USD

As far as significant price movements go, traders will need to look elsewhere. In the past week since our last gold price forecast update, prices have continued to trade sideways. It still holds that neither the October low (set on October 1 at 1458.97) nor the October high (set on October 3 at 1519.53) have been tested since the first week of the month.

In a sense, nothing has changed for gold’s momentum profile. “While the gold price bull flag continues to be the predominant price pattern monitored at present time, it is worth noting that momentum is starting to turn lower within the descending channel. Gold prices are below the daily 8-, 13-, and 21-EMA envelope, which are aligned in bearish sequential order. Daily MACD is slipping below its signal line, while Slow Stochastics have dropped back into bearish territory.”

Accordingly, the descending channel/bull flag support comes into play near 1435 by the end of the week, so a sharp turn lower may still not be the sign of a top. It still holds that, “if the bull flag in gold prices is legitimate, a break above the late-September swing high at 1538.58 would need to be achieved. In doing so, gold prices would also retake the uptrend from the May and August 2019 lows. The 100% extension of the move from the May low, the September high, and the October low calls for a target price of 1726.31.”

Gold Price Technical Analysis: Weekly Chart – Inverse Head and Shoulders Pattern (February to October 2019) (Chart 3)

Gold Prices Maintain Bull Flag Continuation Pattern - Key Levels for XAU/USD

Recent gold price consolidation on the daily timeframe must be viewed in context of the longer-term technical picture: the gold price inverse head and shoulders pattern that originated earlier this year is still valid. Depending upon the placement of the neckline, the final upside targets in a potential long-term gold price rally vary: conservatively, drawing the neckline breakout against the January 2018 high at 1365.95 calls for a final target at 1685.67; aggressively, drawing the neckline breakout against the August 2013 high at 1433.61 calls for a final target at 1820.99. Only a break below the August 1 bullish outside engulfing bar low at 1400.38 would draw into question the longer-term bullish potential.

IG Client Sentiment Index: Spot Gold Price Forecast (October 22, 2019) (Chart 4)

Gold Prices Maintain Bull Flag Continuation Pattern - Key Levels for XAU/USD

Spot gold: Retail trader data shows 69.1% of traders are net-long with the ratio of traders long to short at 2.23 to 1. The number of traders net-long is 0.7% higher than yesterday and 5.4% lower from last week, while the number of traders net-short is 11.0% lower than yesterday and 5.0% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests spot gold prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger spot gold-bearish contrarian trading bias.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

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

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides

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

DISCLOSURES

News & Analysis at your fingertips.