Gold price outlook:
- The story around gold prices may be shifting as delta variant problems infect global financial markets.
- However, gold prices are still in the “technical forest” because 1835 could not be reached.
- According to the IG Client Sentiment Index, gold prices will be skewed in the near future.
Chopping this wood
Two weeks ago, it was noted that “gold prices are technically trying to” corner “. The technical measures of momentum have indeed begun to turn higher, but the questions remain. As they say, before the price of gold leaves the technical forest, “more wood must be chopped”. ”
Since then, the price of gold has begun to wood, sitting along the ridge line, where the plain is in front of the eyes. Unfortunately, the questions remain. The demonstration in July failed to remove the technical threshold of 1835, previously marked as a point by which we could say with some certainty that gold prices had left the “technical forest.”
Now that financial markets have taken on delta-related problems – as they did last summer, when fears of a second wave helped gold prices reach new all-time highs – gold prices seem to have strengthened against the backwind.
Gold volatility and gold prices are out of sync
Historically, gold prices, unlike other asset classes, have been associated with volatility. Although other asset classes, such as bonds and equities, do not like increased volatility – signaling greater uncertainty about cash flows, dividends, coupon payments, etc. – gold tends to benefit during periods of higher volatility. As last summer, there is high volatility due to the proliferation of problems with COVID infection.
GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (July 2020 to July 2021) (Chart 1)
Gold volatility (measured by the Cboe Gold Volatility ETF, GVZ, which tracks the 1-month expected gold volatility derived from the GLD option chain) was 15.84. The relationship between the price of gold and the volatility of gold is out of sync over a longer period of time, but there are signs that the relationship is returning to normal. The 5-day correlation between GVZ and the price of gold is -0.40, while the 20-day correlation is -0.67. One week ago, on July 12, the 5-day correlation was -0.49 and the 20-day correlation was -0.12.
Technical analysis of the price of gold: daily schedule (July 2020 – July 2021) (Figure 2)
Gold prices have sought to overcome the declining channel measured by the soaring rises of August 2020 and January 2021, which were repelled by the Fibonacci cluster in the recession of the 1830s. Earlier it was noted that “gold prices seem to be out of the” technical forest “only when 1835 is reached, and last week’s peak reached 1834.20 – it has not yet reached our bullish confidence threshold. Today’s daily hammer candle bull flag resistance ) and at the confluence of the EMA’s daily environment suggests that the momentum has increased in the short term, with price activity in recent days simply declining.
Technical analysis of gold prices: weekly schedule (October 2015 to July 2021) (Figure 3)
As noted in mid-June, “the application of a longer-term bullish view to gold prices is no longer applicable; the outlook is currently clearly neutral. With the risk of significant decay threatening and without further progression below the peaks in August 2020 and January 2021, it is reasonable that the technical structure is unfavorable. “It is possible that we are reaching a point where it is again more appropriate to take a longer – term bullish perspective.
COST PRICE FORECAST (19 July 2021) (CARD 4)
Gold: Data from retailers show that 84.78% of traders are net long, the ratio of long to short traders is 5.57 to 1. The number of net traders is 7.25% yesterday and 10.43% lower than last week. The number of net-short traders is 10.14% higher than yesterday and 7.12% lower than last week. We usually see the contradictory situation of the crowd, and the fact that traders are net tall indicates a continuing fall in the price of gold.
Merchants are less than last week compared to last week. Recent mood swings warn that the current trend in the price of gold may soon turn higher, despite the fact that traders will remain net long.
– Written by Senior Currency Strategist Christopher Vecchio, CFA