Gold Price Outlook:

• Gold prices have moved slightly lower in recent days, descending towards the symmetric triangle support in place since late April.
• Still, “another move lower could occur soon, although the triangle indicates that possible consolidation persists for a few more weeks.”
• According to IG Customer Opinion Indexgold prices exhibit a mixed short-term bias.

Fundamental and technical weakness

Gold prices have moved slightly lower in recent days, dropping towards the symmetric triangle support in place since late April. The fundamental outlook remains bearish as rising US real yields – nominal Treasury yields minus inflation expectations – continue to rise. The outlook states that “any near-term recovery in gold prices retains a ‘sell the recovery’ mindset, especially as gold prices have no seasonal uptrend in June.”

Alas, there is a fly in the ointment. Although a trivial story at the moment, Russia and Belarus have declared that the Lithuanian railway blockade of Kaliningrad amounts to an act of war. Lithuania is a member of NATO, and a spillover of the war in Ukraine into NATO member territory could lead to a sharp escalation of the conflict in the Baltics – which could revitalize the geopolitical premium of the price of gold which took it to over $2,000 an ounce in March. It’s a story worth watching…

Gold volatility continues to decline

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 around cash flow, dividends, coupon payments, etc. – gold tends to benefit during periods of higher volatility. The continued decline in gold volatility over the past two weeks remains a headwind for the immediate gold price outlook.

GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (June 2021 to June 2022) (Chart 1)

Gold volatility (as measured by the Cboe’s Gold Volatility ETF, GVZ, which tracks 1-month implied gold volatility as derived from the options chain GLD) was trading at 17.78 at the time of writing this report. The 5-day correlation between the GVZ and the price of gold is +0.42 while the 20-day correlation is -0.59. A week ago, the June 20, the 5-day correlation was -0.59 and the 20-day correlation was -0.23.

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

Gold prices began to dip below the 23.6% Fibonacci retracement of the 2015 low/2020 high at 1832.48. The technical structure remains worrisome: gold prices remain below the rising trend line from the August 2021, December 2021 and January 2022 lows; and the symmetrical triangle that formed comes after a decline from yearly highs.

Momentum is taking a more bearish bias. Gold prices are now below their daily 5, 8, 13 and 21 EMA envelope, which is still aligned in bearish sequential order. The daily MACD issued a sell signal while below its signal line, and the daily Slow Stochastics are moving towards oversold territory. Still, “another move lower could occur soon, although the triangle indicates that possible consolidation persists for a few more weeks.”

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

Nothing has changed in the longer term. “The weekly deadline continues to suggest that a double top get in shape for golof price, with the two hollow peaks by the August 2020 and March 2022 highs. Since the bearish outer engulfing bar on the weekly time frame in late April, gold prices were unable to sustain significant supply. A drop below the June low of 1805.21 would increase the likelihood of a sustained move below 1800 over the next few months.

CUSTOMER SENTIMENT INDEX IG: GOLD PRICE FORECAST (June 27, 2022) (Chart 4)

Gold: Retail trader data shows that 83.71% of traders are net long with a ratio of long to short traders of 5.14 to 1. The number of net long traders is 3.31% higher than gold. yesterday and 3.87% higher than last week, while the number of net-short traders is 7.12% higher than yesterday and 10.73% lower than last week.

We generally take a contrarian view of crowd sentiment, and the fact that traders are net buyers suggests that gold prices may continue to decline.

Positioning is less net-long than yesterday but net-long since last week. The combination of current sentiment and recent shifts gives us another mixed bias for gold trading.

— Written by Christopher Vecchio, CFA, Senior Strategist