Gold Price Outlook:

  • Gold prices rise as US real yields fall.
  • However, unless gold prices break the downtrend from the March and August highs, it is too early to call a near-term bottom.
  • Gold prices have a short-term bullish bias, according to the IG Customer Opinion Index.

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Exchange of the triple bottom

The surprise drop in US inflation rates in October helped propel the price of gold to its highest level since mid-August. US real yields fell significantly, to 1.486% today, around -34 basis points from their November high. Coupled with a significantly weaker US dollar, the fundamental turnaround helped cushion the technical reversal in gold prices in November, which gained further legitimacy.

Gold Volatility, Gold Price Correlation Deeply Negative

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. Gold volatility continued to decline, and amid US dollar weakness, this translated into a surprisingly strong environment for gold prices.

GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (November 2021 to November 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 17.37 at the time of writing this report. The 5-day correlation between the GVZ and the price of gold is -0.99 while the 20-day correlation is -0.53. A week ago, on November 7, the 5-day correlation was +0.01 and the 20-day correlation was +0.34.

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

Last week it was noted that “a triple bottom could form against 1614/17, reinforced by multiple morning star candlestick patterns since late September…a move above the area around 1680…would see prices Gold retrace above former multi-month support (turned resistance) and break the downtrend in place since March and October highs Gold prices traded above from 1680 and the area around the October highs near 1730, reinforcing the belief that a short-term low has been found.As momentum has turned more bullish in the short-term, the rally may still have legs to the higher August high at 1807.96.

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

In last week’s update, it was concluded that “if gold prices break the downtrend from the March and October highs, breaking above 1680 – as well as the 38 Fibonacci retracement .2% of the 2015 low/2020 high range at 1682.27 – would warrant a more uptrend looking ahead After hitting this target, gold prices could be breaking out of some sort of wedge bearish bullish which sets the stage for a more bullish outlook for the foreseeable future.The clearing of 1807.96 would highlight the 23.6% Fibonacci retracement of the 2015 low/2020 high range at 1832.48.

Recommended by Christopher Vecchio, CFA

Building confidence in trading

CUSTOMER SENTIMENT INDEX IG: GOLD PRICE FORECAST (November 14, 2022) (Chart 4)

Gold: Retail trader data shows that 71.32% of traders are net long with a ratio of long to short traders of 2.49 to 1. The number of net long traders is 1.19% higher than gold. yesterday and 14.04% lower than last week, while the number of net-short traders is 12.92% higher than yesterday and 3.86% higher 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.

Still, traders are net less long than yesterday and compared to last week. Recent shifts in sentiment warn that the current gold price trend may soon reverse higher despite traders staying sharp.

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— Written by Christopher Vecchio, CFA, Senior Strategist

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