Gold price outlook:
- Gold prices keep the accession of technical resistance below, which could jeopardize recovery.
- Strengthening Fed narrowing talk that has revived US dollar (Via the DXY index) also does not please bullion bars.
- Accordingly IG customer mood index, gold prices are bullish in the near future.
The brilliance wears off
Gold prices plummeted last week when 24,000 futures contracts ($ 4 billion face value) were sold on August 9th. As their March 2021 lows dropped, the freshest year was set to be filled only with a feverish shopping frenzy that pushed the entire downward movement away. And yet, the bulls have still not regained control. Gold prices have not yet recovered from their July range and are below the support of a symmetric triangle for several months. Strengthening Fedi ‘s narrowing story, which has revived US dollar (via DXY index), also does not favor bullion.
Gold volatility and convergence of gold prices
Historically, gold prices, unlike other asset classes, have been linked to volatility. While other asset classes such as bonds and shares do not like increased volatility – indicates high uncertainty about cash flows, dividends, coupon payments, etc. – gold tend tos benefit during periods of higher volatility. The increase in gold volatility and the strengthening of correlations suggest that gold bulls may still have hope.
GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (August 2020 to August 2021) (Figure 1)
Gold volatility (measured by the Cboe Gold Volatility ETF, GVZ, which tracks the expected 1-month volatility of gold derived from the GLD option chain) traded at 16.15. The relationship between gold prices and gold volatility is normalizing as gold prices rise and gold volatility increases. The 5-day correlation between GVZ and gold prices is +0.53, and the 20-day correlation is -0.81. One week ago, on August 12, the 5-day correlation was -0.93 and the 20-day correlation was -0.81.
Technical analysis of the price of gold: daily schedule (August 2020 to August 2021) (Figure 2)
Gold prices are close to the channel resistance measured in relation to the height of the August 2020 and January 2021 fluctuations, but have not yet returned to their July range and back to the symmetric triangle that has regulated price activity since early 2021.
Although the momentum has taken a sharp return from last week’s low rises, it has slowed in recent days; the daily EMA envelope remains in a coarse order. The daily MACD drifts higher but remains below its signal line, while the daily slow stochastic appears above the midline after a short rise.
Another fall below the upward trend of May 2019, March 2020 and March 2021 probably brought problems with gold prices.
Technical analysis of gold prices: weekly chart (October 2015 to August 2021) (Figure 3)
It was previously said that “in the case of the 1780 loss, the focus will be on May 2019, March 2020 and 2021. There is currently sufficient technical evidence for trading near 1780 to suggest that a deeper setback is still possible. The weekly MACD continues to be below its signal line, while the weekly slow stochastic is below the midline. As gold prices are below their weekly 4-, 13- and 26-EMA envelopes, it may happen that gold rallies are sold at prices that end in less than 1,700.
IG CLIENT SENTIMENT INDEX: GOLD PRICE FORECAST (August 18, 2021) (TABLE 4)
Gold: Retailers’ data show that 65.11% of traders are online and the ratio of long to short traders is 1.87-1. The number of traders is 3.94% lower than yesterday and 14.78% lower than last week. the number of traders-short is 9.82% higher than yesterday and 13.08% higher than last week.
We usually take the opposite view of the mood of the crowd, and the fact that traders are network-long suggests that gold prices may continue to fall.
However, traders are less taller than last week than yesterday. Recent mood swings warn that the current trend in the price of gold may soon turn higher, despite the fact that traders are still long.
– Written by Christopher Vecchio, CFA, Senior Currency Strategist