Gold Price Forecast: Weak US Data, US Dollar Spurring Rebound

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Gold Price Outlook:

  • Gold costs have rebounded from rising channel help – in addition to the descending trendline from the all-time excessive.
  • A spat of weaker US financial information has dragged down the US Dollar, giving gold costs a short-term enhance. However, falling gold volatility is a priority.
  • According to the IG Client Sentiment Index, gold costs have a bearish bias within the near-term.

US Jobs Data in Focus

Gold costs are engaged on their third consecutive day increased as a spat of weaker US financial information has undercut US Treasury yields, and in flip, the US Dollar (by way of the DXY Index). Markets are rapidly shifting right into a ‘bad news is good news’ mindset, insofar as weaker US information signifies that Federal Reserve policymakers will not be as aggressive with their tone in forthcoming remarks.

Outside of the weaker US Dollar and a possible contraction within the US nonfarm payrolls report this Friday, there are causes to doubt that gold worth’s push increased shall be sustained. Gold volatility has been dropping rapidly in current days, which traditionally tends to correlate with decrease gold costs. Moreover, the seasonal tendency for February suggests weaker gold costs over the course of the month.

Gold Volatility and Gold Prices’ Relationship Inverts

Historically, gold costs have a relationship with volatility in contrast to different asset courses. While different asset courses like bonds and shares don’t like elevated volatility signaling larger uncertainty round money flows, dividends, coupon funds, and many have a tendencys to learn during times of upper volatility. The current hunch in gold volatility suggests any features by gold costs could also be restricted.

GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (February 2021 to February 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 possibility chain) was buying and selling at 15.79 on the time this report was written. The relationship between gold costs and gold volatility has dramatically reverted in current days. The 5-day correlation between GVZ and gold costs is -0.96 whereas the 20-day correlation is -0.26. One week in the past, on January 26, the 5-day correlation was +0.24 and the 20-day correlation was +0.33.

Gold Price Rate Technical Analysis: Daily Chart (February 2021 to February 2022) (Chart 2)

Gold Price Forecast: Weak US Data, US Dollar Spurring Rebound - Levels for XAU/USD

Gold costs weren’t capable of attain the 1860/1870 stage eyed within the prior replace, as an alternative turning sharply decrease across the January Fed assembly. But the pullback noticed gold costs return to a cluster of help simply above 1780, the descending trendline from the August 2020 and June 2021 swing highs in addition to rising channel help from the August 2021 and December 2021 swing lows. If gold costs proceed to rally over the approaching days across the January US NFP report, it could current a ‘sell the rally’ alternative amidst a backdrop of still-rising US actual yields, which current a big headwind for gold costs in 2022.

Gold Price Technical Analysis: Weekly Chart (October 2015 to February 2022) (Chart 3)

Gold Price Forecast: Weak US Data, US Dollar Spurring Rebound - Levels for XAU/USD

Gold costs are holding beneath their weekly 4-, 13-, and 26-EMA envelope, which in any other case retains its constructive slop. Weekly MACD is flat at its sign line, whereas weekly Slow Stochastics are trending decrease albeit nonetheless above their median line. If something, the weekly timeframe for gold costs means that extra uneven, sideways buying and selling is forward for the foreseeable future.


Gold Price Forecast: Weak US Data, US Dollar Spurring Rebound - Levels for XAU/USD

Gold: Retail dealer information exhibits 82.61% of merchants are net-long with the ratio of merchants lengthy to quick at 4.75 to 1. The variety of merchants net-long is 1.44% increased than yesterday and 21.83% increased from final week, whereas the variety of merchants net-short is 0.81% decrease than yesterday and 32.18% decrease from final week.

We sometimes take a contrarian view to crowd sentiment, and the actual fact merchants are net-long suggests Gold costs could proceed to fall.

Traders are additional net-long than yesterday and final week, and the mix of present sentiment and up to date adjustments provides us a stronger Gold-bearish contrarian buying and selling bias.

— Written by Christopher Vecchio, CFA, Senior Strategist

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