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Gold Price Outlook: Gold prices have made a small rebound in the last week, but they are still stuck in ‘the technical woods.’
With a cluster of Fibonacci levels above, gold prices don’t appear to be out of the ‘technical woods’ until 1835 is reached.
Gold prices have a bullish tilt in the near term, according to the IG Client Sentiment Index.
There are still unanswered questions.
At the start of July, gold prices experienced a slight but sustained gain, which is consistent with recent seasonality tendencies that suggest gold will have one of its strongest months of the year. Gold prices are attempting to ’round the corner,’ technically speaking, fueled by falling US real rates in recent days – the slump in long-end US Treasury yields has exceeded the decline in inflation expectations. Although technical momentum indicators have begun to rise, doubts persist. Before gold prices depart ‘the technical woods,’ as the adage goes,’more wood needs to be chopped.’ Gold Prices and Volatility are Keeping a Close Eye on Each Other Unlike other asset classes, gold prices have always had a link with volatility. While other asset classes, such as bonds and stocks, dislike heightened volatility because it indicates greater uncertainty about cash flows, dividends, and coupon payments, gold tends to profit from it. Technical Analysis of GVZ (Gold Volatility): Price Chart for the Day (July 2020 to July 2021) (Graph 1) Gold volatility (as measured by Cboe’s gold volatility ETF, GVZ, which tracks gold’s 1-month implied volatility generated from the GLD option chain) was at 15.21. In recent days, the link between gold prices and gold volatility has been ‘normal,’ but on a longer time horizon, it has been deteriorating. GVZ and gold prices have a 5-day correlation of -0.84 and a 20-day correlation of -0.31. The 5-day correlation was -0.92 and the 20-day correlation was -0.48 a week ago, on June 30. Technical Analysis of the Gold Price: Daily Chart (March 2020 to July 2021) (Graph 2) Gold prices have risen slightly in the last week as US Treasury yields have fallen. However, the technical picture is at best hazy. Gold prices rebounded at the 50 percent Fibonacci retracement of the 2020 high/low move at 1763.57 last week, ahead of the ascending trendline from the May 2019, March 2020, and March 2021 lows. Gold prices, however, remain within the declining channel as compared to the swing highs of August 2020 and January 2021. With a cluster of Fibonacci levels above, gold prices don’t appear to be out of the ‘technical woods’ until 1835 is reached. Technical Analysis of Gold Prices: Weekly Chart (October 2015 to July 2021) (Chart 3) As previously said in mid-June, “A longer-term positive perspective on gold prices is no longer appropriate; the prognosis is certainly neutral at this moment. The risk of a more substantial breakdown looms, and without further movement above the falling trendline from the August 2020 and January 2021 highs, the technical structure appears to be negative.” GOLD PRICE FORECAST (July 7, 2021) IG CLIENT SENTIMENT INDEX (CHART 4) Gold: According to retail trader data, 84.79 percent of traders are net-long, with a long-to-short ratio of 5.57 to 1. The number of traders who are net-long is up 1.61 percent from yesterday and down 1.47 percent from last week, while those who are net-short is up 15.96 percent from yesterday and up 1.86 percent from last week. We tend to be contrarians when it comes to crowd sentiment, and the fact that traders are net-long on gold signals that prices will continue to decline. Traders are, however, less net-long today than they were yesterday and last week. Despite the fact that traders are net-long, recent changes in mood suggest that the present Gold price trend may shortly reverse higher. —- Christopher Vecchio, CFA, Senior Currency Strategist wrote this article./n
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