Gold Price Prediction: New Early Selling
Gold Price Outlook:
- Gold prices continue to decline slightly, in part thanks to a discouraging fundamental and technical backdrop.
- The measured move from the breakout of the symmetrical triangle calls for gold prices to fall below 1700 over the next few weeks.
- According to IG Customer Opinion Indexgold prices exhibit a mixed short-term bias.
nothing to love
Gold prices continue to trade lower after breaking out of their downward multi-month symmetrical triangle. The technical outlook remains weak, with price action suggesting a move below 1700 is possible in the coming weeks. The fundamental story also remains bearish, as the rise in US real yields – nominal Treasury yields minus inflation expectations – remains higher. The “sell the rally” perspective remains valid for the foreseeable future, plain and simple.
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. A double top in gold volatility offers a worrisome signal for the future of gold prices.
GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (July 2021 to July 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 7:45 p.m. at the time of writing this report. The 5-day correlation between the GVZ and the price of gold is +0.27 while the 20-day correlation is -0.36. A week ago, the July the 5th, the 5-day correlation was -0.93 and the 20-day correlation was -0.60.
Gold Price Rate Technical Analysis: Daily Chart (July 2021 to July 2022) (Chart 2)
Gold prices fell significantly below the 23.6% Fibonacci retracement of the 2020/2021 high range at 1770.89 after their planned nsymmetrical triangle breakout. The technical structure is increasingly bearish, with momentum taking a strong negative tone. Gold prices remain below their daily envelope of 5, 8, 13 and 21 EMA, which is aligned in a bearish sequential order. The daily MACD’s descent below its signal line deepens, while the daily Slow Stochastics are buried in oversold territory. The measured move out of the triangle calls for a decline towards 1680 over the next few weeks – right where the 2021 lows were found.
Gold Price Technical Analysis: Weekly Chart (October 2015 to July 2022) (Chart 3)
As mentioned several times before, “a drop below the June low of 1805.21 would increase the likelihood of a sustained move below 1800 in the coming months.” This indeed plays out, in accordance with the aforementioned view that “tthe weekly calendar 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.“A return to the zone around the 2021 low near the 38.2% Fibonacci retracement of the 2015 low/2020 high at 1682.72 looks likely soon.
CUSTOMER SENTIMENT INDEX IG: GOLD PRICE FORECAST (July 12, 2022) (Chart 4)
Gold: Retail trader data shows that 84.40% of traders are net long with a ratio of long to short traders of 5.41 to 1. The number of net long traders is 2.10% lower than that of yesterday and 1.80% higher than last week, while the number of net-short traders is 11.27% higher than yesterday and 1.76% 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.
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