Gold Price Prediction: Remains Below Former Support Post Fed – Levels for XAU/USD – DailyFX | Jewelry Dukan

Gold Price Outlook:

  • Gold prices were dragged lower after the September Fed meeting as the FOMC signaled further rate hikes in the coming months.
  • Technical analysis studies suggest that gold prices may be in for further weakness, having failed to stage a meaningful recovery beyond 1680.
  • As a result, gold prices are maintaining a bearish trend in the near term IG Customer Sentiment Index.

Recommended by Christopher Vecchio, CFA

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Fed isn’t turning around any time soon

The September Fed meeting revealed a more hawkish FOMC than markets had expected. Ahead of the meeting, rates markets were expecting the Fed’s interest rate to peak in 2023 at 4.5% and end the year closer to 4%. Instead, the summary of economic forecasts showed that some Fed policymakers preferred to bring the benchmark rate closer to 5% at its peak, while the consensus was that the benchmark rate would end at 4.6% in 2023.

The net impact was higher US Treasury yields and US real yields, which have been the bane of gold prices in recent months (US 10-year Treasury real yields peaked at +110 basis points). It is clear that the fundamental environment has become more difficult over the past 24 hours, adding to the already weak technical backdrop (not to mention a bearish price). September seasonality trendj).

Gold volatility falls, gold prices stable

Historically, unlike other asset classes, gold prices have had a relationship with volatility. While other asset classes like bonds and stocks dislike heightened volatility – indicating greater uncertainty around cash flows, dividends, coupon payments, etc. – gold tends to benefit during periods of higher volatility. Gold volatility has retreated slightly and coupled with higher US yields (both nominal and real) and a stronger US dollar, gold prices continue to struggle.

GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (September 2021 to September 2022) (Chart 1)

Gold volatility (as measured by Cboe’s gold volatility ETF, GVZ, which tracks the 1-month implied volatility of gold as derived from the GLD options chain) was 17.91 at the time of writing. The 5-day correlation between GVZ and gold prices is -0.51, while the 20-day correlation is -0.92. A week ago, on September 15, the 5-day correlation was -0.98 and the 20-day correlation was -0.89.

Gold Price Technical Analysis: Daily Chart (August 2021 to September 2022) (Chart 2)

Last week, it was noted that “a return to the yearly low cannot be ruled out in the near term”. Gold prices fell around 1680 through the earlier year low, hitting a September low and 2022 low yesterday at 1653.87. While there has been no notable downside, the fact is that gold prices have been viewing the 1680 area as a ceiling for the past few days, suggesting that former support has turned into significant resistance.

Momentum is still bearish. Gold prices are well below their daily 5, 8, 13, and 21 EMAs and the EMA envelope is in a bearish order. The daily MACD is trending lower below its signal line and the daily Slow Stochastics are holding in oversold territory. A drop below 1653.87 would open the floor for a move into the 1630s by the end of the month.

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

The longer-term view is developing slightly, although “a dual leadership remains [and] a massive sideways range may have formed between 1680 and 2075.” Momentum on the weekly timeframe remains bearish with gold prices below its weekly 4, 8, and 13 EMA envelope, which are in bearish sequential order. The weekly MACD is still trending lower below its signal line and the weekly Slow Stochastics are in oversold territory. Unless gold prices recover above 1680, the double top warrants a long-term – multi-month if not multi-year – bearish perspective for gold prices.

Recommended by Christopher Vecchio, CFA

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Gold: Retail trader data shows that 81.23% of traders are net long, with the trader long to short ratio being 4.33 to 1. The number of traders net long is 4.75% lower than yesterday and 11.33% lower than last week, while the number of traders net short is 15.92% lower than yesterday and 35.61% lower higher than last week.

We typically view crowd sentiment as contrarian and the fact that traders are net long suggests gold prices could fall further.

Positioning is net-longer than yesterday but less net-long than last week. The combination of current sentiment and recent changes gives us another mixed bias on gold trading.

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— Written by Christopher Vecchio, CFA, Senior Strategist

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