Gold Price Outlook:
- Gold prices are holding below symmetrical triangle support, with momentum indicators starting to point down.
- It was only by clearing 1785 in the days to come that traders would have a good reason to look at long-term gold prices; otherwise, selling the rally may be the modus operandi now.
- According to IG Customer Sentiment Index, gold prices have a neutral bias in the short term.
A dead cat bounce?
Last week it was noted that “it increasingly appears that the only catalyst for bullish gold prices in the short term is a potential violation of the US debt ceiling in 2011 or a collapse of China’s Evergrande. , but beyond that, there isn’t much for gold to hang your hat on.
News surrounding the developed Chinese property Evergrande has sapped risk appetite in global financial markets, resurrecting besieged precious metals like gold. But the countertrend in gold prices this week lacks bite, as no significant level of technical resistance – mostly old supports in various ways – has been eliminated.
What is happening in gold prices may be nothing more than a “dead cat rebound” as financial markets prepare to be content with the results of the September Fed meeting. tomorrow afternoon. In recent Fed meetings and, furthermore, reports of these Fed meetings, gold prices have not performed well as U.S. policymakers move closer and closer to announcing ‘a reduction in the stimulus.
Anomalous relationship between gold volatility and 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 tenders profit during times of higher volatility. Declining gold volatility and weak correlations suggest that further difficult trade may be ahead for gold prices.
GVZ technical analysis (gold volatility): daily price chart (September 2020 to September 2021) (Chart 1)
Gold volatility (as measured by Cboe’s Gold Volatility ETF, GVZ, which tracks 1-month implied gold volatility as derived from the GLD options chain) is was trading at 16.37. The relationship between gold prices and gold volatility remains abnormal. The 5-day correlation between the GVZ and gold prices is -0.49 while the 20-day correlation is -0.65. A week ago, on September 14, the 5-day correlation was -0.92 and the 20-day correlation was -0.47.
Technical analysis of the gold price: daily chart (August 2020 to September 2021) (Chart 2)
Last week it was noted that “as a whole, the inability to overcome the July highs – erasing the 1835 level discussed ad nauseum over the past six weeks – suggests the pair has short bearish technical tilts. term”. Yesterday, gold prices hit a new monthly low just above 1742.
The countertrend in the past 24 hours may present an opportunity for gold price to sell for fear that a further breakdown in risk appetite may occur. Gold prices remain below their daily envelope of 5, 8, 13 and 21 EMA, which is in a bearish sequential order. The Daily MACD is falling below its signal line, and the Daily Slow Stochastics linger in oversold territory.
Even though a rebound has occurred in the past 24 hours, gold prices remain below former support in the symmetrical triangle that encompassed price action from January to July, and more recently have traded below the ascending trendline of May 2019, March 2020 and the lows of March 2021. Further weakness cannot be ruled out at this time.
Technical analysis of the gold price: weekly chart (October 2015 to September 2021) (Chart 3)
The technical structure of gold prices on the weekly horizon has eroded over the past few days. The 4, 13 and 26 EMA weekly envelope tilts down as the weekly MACD has started to slide below its signal line. Even the Weekly Slow Stochastics have started to drop near their midline. It was only by clearing 1785 in the days to come that traders would have a good reason to look at long-term gold prices; otherwise, selling the rally may be the modus operandi now.
IG CUSTOMER FEELING INDEX: GOLD PRICE FORECAST (September 21, 2021) (CHART 4)
Gold: Data from retail traders shows that 80.78% of traders are net long with the ratio of long to short traders at 4.20 to 1. The number of net long traders is 3.21% lower than the number of long to short traders. ‘yesterday and 13.37% higher than last week, the number of net-short traders is 1.86% lower than yesterday and 1.61% 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.
The positioning is shorter on the net than yesterday but longer on the net than last week. The combination of current sentiment and recent changes gives us another mixed bias for gold trading.
— Written by Christopher Vecchio, CFA, Senior Strategist