Gold Price Forecast: Nearing Triangle Resistance

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Gold Price Outlook:

  • Gold costs have rallied in seven of the previous eight classes, sending it in the direction of symmetrical triangle resistance – the descending trendline from the November 2021 and January 2022 swing highs.
  • The combine of upper US Treasury yields, falling inflation expectations, and a drop in gold volatility attracts into query the sustainability of the latest rally by gold costs.
  • According to the IG Client Sentiment Index, gold costs retain a bullish bias within the near-term.

Strong Start to February

Gold costs are having a powerful begin to February, rallying in seven of the previous eight classes – and bucking a weak seasonality profile within the course of. And whereas the technical image has grow to be extra bullish within the short-term, questions stay concerning the sustainability of the rally in gold costs contemplating that elementary backdrop stays difficult. US Treasury yields proceed to rise and inflation expectations proceed to fall – curating greater actual yields – whereas gold volatility has trended decrease via the primary week-plus of February.

Gold Volatility and Gold Prices’ Relationship Inverts

Historically, gold costs have a relationship with volatility not like 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 so forth.gold have a tendencys to learn in periods of upper volatility. The ongoing slide in gold volatility warns that the rally in gold costs could have its limits.

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 15.54 on the time this report was written. The relationship between gold costs and gold volatility continues to show extra destructive, which is traditionally problematic for a sustained rally. The 5-day correlation between GVZ and gold costs is -0.21 whereas the 20-day correlation is -0.41. One week in the past, on February 2, the 5-day correlation was -0.95 and the 20-day correlation was -0.26.

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

Gold Price Forecast: Nearing Triangle Resistance - Levels for XAU/USD

Gold costs have continued to rally after reaching 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. As famous final week, “if gold prices continue to rally over the coming days around the January US NFP report, it may present a ‘sell the rally’ opportunity amidst a backdrop of still-rising US real yields, which present a significant headwind for gold prices in 2022.” Gold costs are nearing symmetrical triangle resistance close to 1845, which can current the chance to search for shorts.

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

Gold Price Forecast: Nearing Triangle Resistance - Levels for XAU/USD

Not a lot has modified for the longer-term technical outlook. Gold costs are above their weekly 4-, 13-, and 26-EMA envelope, which is in bullish sequential order. Weekly MACD is trending greater simply above its sign line, whereas weekly Slow Stochastics are trending decrease albeit nonetheless above their median line. It stays the case that “the weekly timeframe for gold prices suggests that more choppy, sideways trading is ahead for the foreseeable future.”

IG CLIENT SENTIMENT INDEX: GOLD PRICE FORECAST (February 9, 2022) (Chart 4)

Gold Price Forecast: Nearing Triangle Resistance - Levels for XAU/USD

Gold: Retail dealer information reveals 71.09% of merchants are net-long with the ratio of merchants lengthy to brief at 2.46 to 1. The variety of merchants net-long is 3.68% decrease than yesterday and 16.12% decrease from final week, whereas the variety of merchants net-short is 15.07% greater than yesterday and 62.04% greater from final week.

We usually take a contrarian view to crowd sentiment, and the actual fact merchants are net-long suggests Gold costs could 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 value pattern could quickly reverse greater regardless of the actual fact merchants stay net-long.

— Written by Christopher Vecchio, CFA, Senior Strategist

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