Gold Price Outlook:
- Gold costs stay elevated as volatility throughout a wide range of asset lessons sustains its push greater.
- Technically, gold costs have extra upside into 1860/1870 within the near-term. However, the Fed assembly tomorrow may upend the technical outlook swiftly.
- According to the IG Client Sentiment Index, gold costs have a bullish bias within the near-term.
Fed Meeting Tomorrow
Gold costs briefly touched a contemporary month-to-month and yearly excessive earlier as we speak as danger urge for food continues to flounder. News move out of Eastern Europe stays regarding at finest, with demand for protected havens stoked amid the prospect of a Russian invasion of Ukraine. The Japanese Yen, Swiss Franc, and US Dollar stay among the many high performers in FX, an prevalence that usually offers room for stronger gold costs, too.
And with the Federal Reserve price determination due tomorrow, measures of volatility have remained elevated. There is a little bit of a catch-22 for gold costs across the FOMC, nevertheless. While a extra dovish Fed ought to theoretically undercut the US Dollar, relaxed volatility measures would finally weigh on gold costs. An overly aggressive FOMC, alternatively, may maintain volatility elevated, however rising US Treasury yields (and extra importantly, US actual yields) may cap any vital upside.
Gold Volatility and Gold Prices’ Relationship More Normal
Historically, gold costs have a relationship with volatility in contrast to different asset lessons. While different asset lessons like bonds and shares don’t like elevated volatility – signaling higher uncertainty round money flows, dividends, coupon funds, and many others. – gold have a tendencys to profit during times of upper volatility. With volatility throughout a number of asset lessons remaining elevated, gold costs have been capable of attain for brand new highs.
GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (January 2021 to January 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 choice chain) was buying and selling at 16.59 on the time this report was written. The relationship between gold costs and gold volatility has continued to normalize in current days. The 5-day correlation between GVZ and gold costs is +0.58 whereas the 20-day correlation is +0.30. One week in the past, on January 18, the 5-day correlation was +0.58 and the 20-day correlation was -0.29.
Gold Price Rate Technical Analysis: Daily Chart (January 2021 to January 2022) (Chart 2)
Truth be instructed, gold costs haven’t made a lot of a big transfer by hook or by crook since we checked in final week. At the time, it was famous, and stays legitimate, that “with the 1835 hurdle cleared, traders may want to look higher before exploring new selling opportunities. The next cluster of resistance lies around 1860/1870, where the ascending trendline from the May 2019, March 2020, and March 2021 lows comes into play.” New month-to-month and yearly highs affirm the near-term prospects stay bullish, from a technical perspective.
Gold Price Technical Analysis: Weekly Chart (October 2015 to January 2022) (Chart 3)
Nothing adjustments on a longer-term perspective: “It’s worth reminding that January is the best month of the year for gold prices according to seasonality studies, so there is a quantitative tailwind helping provide support in the near-term. It also remains the case that the weekly 4-, 8-, and 13-EMA envelope is taking on a positive slope. Alongside weekly MACD turning higher through its signal line, and weekly Slow Stochastics advancing above their median line, bullish momentum has increased in recent weeks, opening the possibility for more gains henceforth before fundamental headwinds curtail the rally.”
IG CLIENT SENTIMENT INDEX: GOLD PRICE FORECAST (January 25, 2022) (Chart 4)
Gold: Retail dealer information reveals 69.96% of merchants are net-long with the ratio of merchants lengthy to brief at 2.33 to 1. The variety of merchants net-long is 1.07% decrease than yesterday and 0.61% decrease from final week, whereas the variety of merchants net-short is 0.81% greater than yesterday and 0.37% decrease from final week.
We usually take a contrarian view to crowd sentiment, and the actual fact merchants are net-long suggests Gold costs might proceed to fall.
Yet merchants are much less net-long than yesterday and in contrast with final week. Recent adjustments in sentiment warn that the present Gold worth development might quickly reverse greater regardless of the actual fact merchants stay net-long.
— Written by Christopher Vecchio, CFA, Senior Strategist
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