Gold Price Forecast: Edging Towards Triangle Support - Levels for XAU/USD
What's on this page
- Gold Price Outlook:
- Fundamental & Technical Weakness
- Gold Volatility Continues Decline
- GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (June 2021 to June 2022) (Chart 1)
- Gold Price Rate Technical Analysis: Daily Chart (June 2021 to June 2022) (Chart 2)
- Gold Price Technical Analysis: Weekly Chart (October 2015 to June 2022) (Chart 3)
- IG CLIENT SENTIMENT INDEX: GOLD PRICE FORECAST (June 27, 2022) (Chart 4)
Gold Price Outlook:
- Gold prices have edged lower in recent days, descending towards symmetrical triangle support in place since the end of April.
- It remains the case that “another move lower may transpire soon, though the triangle dictates that it’s possible consolidation persists for a few more weeks.”
- According to the IG Client Sentiment Index, gold prices hold a mixed bias in the near-term.
Fundamental & Technical Weakness
Gold prices have edged lower in recent days, descending towards symmetrical triangle support in place since the end of April. The fundamental outlook remains bearish, as rising US real yields – nominal Treasury yields less inflation expectations – continue to move up. The outlook holds that “any short-term rallies by gold prices retain a ‘sell the rally’ mindset, particularly as gold prices don’t have a bullish seasonality tendency in June.”
Alas, there’s a fly in the ointment. While a trivial story at the moment, Russia and Belarus have declared that Lithuania’s railroad blockade of Kaliningrad is tantamount to an act of war. Lithuania is a member of NATO, and a spillover of the war in Ukraine into NATO member territory could see a sharp escalation of the conflict into the Baltics – which could revitalize gold price’s geopolitical premium that carried it over $2000/oz in March. This is a story worth watching…
Gold Volatility Continues Decline
Historically, gold prices have a relationship with volatility unlike other asset classes. While other asset classes like bonds and stocks don’t like increased volatility – signaling greater uncertainty around cash flows, dividends, coupon payments, etc. – gold tends to benefit during periods of higher volatility. Gold volatility’s ongoing pullback over the past two weeks remains a headwind for gold price’s immediate prospects.
GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (June 2021 to June 2022) (Chart 1)
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) was trading at 17.78 at the time this report was written. The 5-day correlation between GVZ and gold prices is +0.42 while the 20-day correlation is -0.59. One week ago, on June 20, the 5-day correlation was -0.59 and the 20-day correlation was -0.23.
Gold Price Rate Technical Analysis: Daily Chart (June 2021 to June 2022) (Chart 2)
Gold prices have started to dip below the 23.6% Fibonacci retracement of the 2015 low/2020 high range at 1832.48. The technical structure remains foreboding: gold prices remain below the rising trendline from the August 2021, December 2021, and January 2022 lows; and the symmetrical triangle that’s formed comes after a decline from the yearly highs.
Momentum is taking on a more bearish bias. Gold prices are now below their daily 5-, 8-, 13-, and 21-EMA envelope, which is still aligned in bearish sequential order. Daily MACD has issued a sell signal while below its signal line, and daily Slow Stochastics are making progress towards oversold territory. It remains the case that “another move lower may transpire soon, though the triangle dictates that it’s possible consolidation persists for a few more weeks.”
Gold Price Technical Analysis: Weekly Chart (October 2015 to June 2022) (Chart 3)
Nothing has changed longer-term. “The weekly timeframe continues to suggest that a double top is forming for gold prices, with the two peaks carved out by the August 2020 and March 2022 highs. Ever since the bearish outside engulfing bar on the weekly timeframe in late-April, gold prices have not been able to sustain a meaningful bid. A drop below the June low of 1805.21 would increase the likelihood of a sustained move beneath 1800 over the next few months.”
IG CLIENT SENTIMENT INDEX: GOLD PRICE FORECAST (June 27, 2022) (Chart 4)
Gold: Retail trader data shows 83.71% of traders are net-long with the ratio of traders long to short at 5.14 to 1. The number of traders net-long is 3.31% higher than yesterday and 3.87% higher from last week, while the number of traders net-short is 7.12% higher than yesterday and 10.73% 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.
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--- Written by Christopher Vecchio, CFA, Senior Strategist
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.