Burst of the double bottom? Levels for XAU / USD
Gold Price Outlook:
- Gold prices have not risen much since the resistance to consolidation eased in mid-April.
- Still, “failure below the trio of key technical levels would suggest that a false bullish breakout has developed, setting up a potential return to annual lows.”
- According to IG Client Sentiment Index, gold prices have a short-term bullish bias.
Gold prices don’t shine
Gold prices may have appreciated bullisheasy tailwind in April, but the price action over the past week has proven to be tame, if not downright boring. Although it is true that gold prices haven’t advanced much since the resistance to consolidation was removed in mid-April, that does not mean the market is not persisting near a critical threshold.
Now that we see the US dollar falling even as US Treasury yields rise – a condition that has set in over the past year when real US yields have fallen – traders may want to keep an eye out for gold price to see if the market starts. waking up with May around the corner.
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Gold price, the volatility relationship of gold offers clues
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 about cash flow, dividends, coupon payments, etc. – gold tenders to take advantage during periods of higher volatility.
GVZ technical analysis (gold volatility): daily price chart (April 2020 to April 2021) (Chart 1)
Gold volatility (as measured by the Cboe Gold Volatility ETF, GVZ, which tracks the one-month implied volatility of gold derived from the GLD options chain) is trading at 14 , 93, rapidly approaching the last-year closing low set at mid-year. April at 2:26 p.m. Gold prices and gold volatility have seen their relationship strengthen in recent days, and further decline in gold volatility could prove to be a burden on gold prices. The 5 day correlation between GVZ and gold prices is +0.76 while the 20 day correlation is -0.50. A week ago, on April 20, the 5-day correlation was +0.74 and the 20-day correlation was -0.61.
Technical analysis of the gold price rate: daily chart (March 2020 to April 2021) (Chart 2)
In recent weeks, it has been suggested that “gold prices may have set a double floor in the near term. So far, this outlook remains valid, as gold prices have not returned below the confluence of the old resistance turned support: the 50% Fibonacci retracement of the low range / high 2020 at 1763.36; the low of November 2020; and resistance to lateral consolidation from March to mid-April 2021.
If the double bottom prospect is valid, then “a mere doubling of recent consolidation (1759.95-1677.36) above resistance suggests gold prices may be heading towards 1842.54 short term – which would push the bullion back to another group of Fibonacci retracements that turned out to be substantial in early 2021. ”Accordingly, it also remains the case that“ fwing below the trifecta of key technical levels c. 1763.36 would suggest that a false bullish breakout has developed, creating a potential return to annual lows below 1700. “
Technical analysis of the gold price: weekly chart (October 2015 to April 2021) (Chart 3)
It was previously noted that “the review was triggered with the drop below 1763.36. Gold prices are currently viewed with a neutral bias over the weekly period, but the technical outlook may soon shift from neutral to bearish below 1682.27, the 38.2% Fibonacci retracement of the 2015 low range. / 2020. While the wider boundaries of the descending parallel channel that formed from the (unprecedented) August 2020 high remain in place, now back above 1763.36, the rebound gives long-term bulls hope that by maintaining the pandemic uptrend, gold prices define their nine-month pullback as a bullish flag.
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IG CUSTOMER FEELING INDEX: GOLD PRICE FORECAST (April 27, 2021) (CHART 4)
Gold: Data from retail traders shows 81.80% of traders are net long with the long / short ratio of traders at 4.49 to 1. The number of net long traders is 0.69% higher than yesterday and 3.80% lower than the number of net-short traders is 2.19% higher than yesterday and 1.20% higher than last week.
We generally take a contrarian view of crowd sentiment, and the fact that traders are net long suggests that gold prices may continue to decline.
However, traders are shorter than yesterday and compared to last week. Recent sentiment shifts warn that the current trend in the price of gold may soon reverse to the upside despite traders staying long term.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist