Gold Price Outlook:
- Gold prices have been trading below the rising trendline since the lows of August 2021, December 2021 and January 2022.
- The continued rise in US real rates suggests further headwinds for gold prices, with 10-year and 30-year real rates holding in sustained positive territory since before the COVID-19 pandemic.
- According to IG Customer Opinion Indexgold prices exhibit a mixed short-term bias.
Gold prices start the week on a positive note, but challenges remain. Fundamentally, the arrival of positive real interest rates in the United States point to weakness in gold prices. A strong US dollar coupled with an aggressive Federal Reserve rate hike cycle should exacerbate this trend. Technically, gold prices have now lost the uptrend from the August 2021, December 2021 and January 2022 lows, suggesting that a significant inflection point has been crossed on the downside. Thus, there is little reason to believe that the movement at the start of the week suggests that the downtrend in gold prices is over in the short term.
Gold’s High Volatility Doesn’t Help Gold Prices
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. In a worrying turn of events, the recent spike in gold volatility has done little to support gold prices, suggesting that the short-term outlook remains weak.
GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (May 2021 to May 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 to 20.95 at the time of writing this report. The 5-day correlation between the GVZ and the price of gold is -0.79 while the 20-day correlation is -0.88. A week ago, the May 9, the 5-day correlation was -0.80 and the 20-day correlation was -0.60.
Gold Price Rate Technical Analysis: Daily Chart (May 2021 to May 2022) (Chart 2)
Gold prices fell below two important levels in recent days: the rising trend line from the lows of August 2021, December 2021 and January 2022; and the 23.6% Fibonacci retracement of the 2015 low/2020 high range at 1832.48. Bearish Momentum stay strong. Gold prices are below their daily EMAs of 5, 8, 13 and 21, and the daily envelope of the EMA is in a bearish sequential order. Daily MACD continues to fall below its signal double, while the daily slow stochastic fit in oversold territory. A a deeper pullback below 1800 appears to be a matter of “if” rather than “when”.
Gold Price Technical Analysis: Weekly Chart (October 2015 to April 2022) (Chart 3)
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. It remains only “one a deeper setback now looks increasingly likely”, especially as the weekly momentum indicators take a deeper turn to the south.
CUSTOMER SENTIMENT INDEX IG: GOLD PRICE FORECAST (May 16, 2022) (Chart 4)
Gold: Retail trader data shows that 84.10% of traders are net long with a ratio of long to short traders of 5.29 to 1. The number of net long traders is 1.04% higher than that of yesterday and 2.19% higher than last week, while the number of net-short traders is 22.00% higher than yesterday and 8.37% lower 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