• Contact Us
  • Homepages
Most Forex
  • For Beginners
  • Strategies
  • Technical Analysis
  • Product Reviews
  • News
  • Videos
No Result
View All Result
  • For Beginners
  • Strategies
  • Technical Analysis
  • Product Reviews
  • News
  • Videos
No Result
View All Result
Most Forex
No Result
View All Result
Home Technical Analysis

Gold Price Forecast: False Breakout Potential amid Return to Wedge

Forex Tips by Forex Tips
October 13, 2020
in Technical Analysis
0
XAU/USD Technical Breakout Eyes 2011 Record Highs
189
SHARES
1.5k
VIEWS
Share on FacebookShare on Twitter


Gold Price Forecast Overview:

  • Gold prices have struggled through September after being one of the best performing assets since global financial markets bottomed out in March.
  • With expectations for fresh fiscal stimulus low, US inflation expectations have receded, allowing US real yields to turn higher. As a result, the fundamental bedrock of the gold price rally has been tempered.
  • According to the IG Client Sentiment Index, gold prices are on mixed footing.

Gold Prices Drop as US Inflation Falls Short

Gold prices are struggling through the early part of the week, spurred by the latest round of US inflation data. The September US consumer price index showed a slightly reduced pace of price growth than anticipated (+1.7% versus +1.8% expected), suggesting that the US growth recovery may be plateauing. While talks regarding another US fiscal stimulus package are ongoing, and a favorable outcome appears to be priced into markets, today’s inflation data directly impacts the policy feedback loop. Lower inflation readings in context of short-term rates pinned near zero thanks to the Federal Reserve means US real yields rise. If rising real yields proved harmful for gold prices throughout August and September, then another bump in US real yields can be reasonably attributed as the rationale behind the gold price decline.

Gold Prices Remain Decoupled from Gold Volatility

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 flows, dividends, coupon payments, etc. – gold tends to benefit during periods of higher volatility. Heightened uncertainty in financial markets due to increasing macroeconomic tensions increases the safe haven appeal of gold.

Gold Forecast

Gold Forecast

Recommended by Christopher Vecchio, CFA

Get Your Free Gold Forecast

GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (October 2008 to October 2020) (Chart 1)

Gold Price Forecast: False Breakout Potential amid Return to Wedge - Levels for XAU/USD

Gold volatility continues to steady, proving neither a positive nor a negative for gold prices. The atypical state of negative correlations persists. Gold volatility (as measured by the Cboe’s gold volatility ETF, GVZ, which tracks the 1-month implied volatility of gold as derived from the GLD option chain) is trading at 23.00. The 5-day correlation between GVZ and gold prices is -0.34 while the 20-day correlation is -0.76; one week ago, on October 6, the 5-day correlation was -0.43 and the 20-day correlation was -0.84.

Our longstanding axiom holds: “given the current environment, falling gold volatility is not necessarily a negative development for gold prices, whereas rising gold volatility has almost always proved bullish; in the same vein, gold volatility simply trending sideways is more positive than negative for gold prices.”

Traits of Successful Traders

Traits of Successful Traders

Recommended by Christopher Vecchio, CFA

Traits of Successful Traders

Gold Price Technical Analysis: Daily Chart (October 2019 to October 2020) (Chart 2)

Gold Price Forecast: False Breakout Potential amid Return to Wedge - Levels for XAU/USD

Gold prices appeared to be finding some bullish resolution after trading for weeks in a falling wedge consolidation since the August high – but that interpretation of price action is being drawn into question at the start of this week. Gold prices have fallen back below the bearish outside engulfing bar high establish on October 6, and in the process, have traded back below the descending trendline from the August and September swing highs.

At present time, gold price momentum is nonexistent. Gold prices are in line with their daily 5-, 8-, 13-, and 21-EMA envelope, which is in neither bearish nor bullish sequential order. Daily MACD is flattening out below its signal line, while Slow Stochastics’ advance towards overbought territory has been stemmed.The previous expectation that “gold prices are about to turn higher in a meaningful way” may be misguided; more clarity is needed.

Gold Price Technical Analysis: Weekly Chart (June 2011 to October 2020) (Chart 3)

Gold Price Forecast: False Breakout Potential amid Return to Wedge - Levels for XAU/USD

It’s been previously noted that “a loss of the August low at 1862.90 would be a very important development insofar as redefining the recent consolidation as a topping effort rather than a bullish continuation effort. That the August low was retaken and prices have returned back into the sideways range, but moreover, having started to breakout of the bullish falling wedge, suggests that we may be witnessing the early stages of the next leg higher.” Failure to stay above the descending trendline from the August and September swing highs would suggest that the next leg higher is not beginning.

IG Client Sentiment Index: Gold Price Forecast (October 13, 2020) (Chart 4)

Gold Price Forecast: False Breakout Potential amid Return to Wedge - Levels for XAU/USD

Gold: Retail trader data shows 76.64% of traders are net-long with the ratio of traders long to short at 3.28 to 1. The number of traders net-long is 2.86% higher than yesterday and unchanged from last week, while the number of traders net-short is 4.08% lower than yesterday and 8.42% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall.

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Gold-bearish contrarian trading bias.

Traits of Successful Traders

Traits of Successful Traders

Recommended by Christopher Vecchio, CFA

Traits of Successful Traders

— Written by Christopher Vecchio, CFA, Senior Currency Strategist





Source link

Share76Tweet47

Related Posts

GBP/USD, EUR/GBP Wedge Patterns in Focus

by Forex Tips
January 24, 2021
0

GBP/USD, EUR/GBP Technical Forecast – Talking PointsGBP/USD rally in question as prices test Rising Wedge trendline resistance Falling Wedge...

FTSE 100, DAX 30 Technical Forecast For The Week Ahead

FTSE 100, DAX 30 Technical Forecast For The Week Ahead

by Forex Tips
January 23, 2021
0

FTSE 100, DAX Analysis and NewsFTSE 100 | Short-Term Pullback, Long Term PositiveDAX | Narrow Range Raises Breakout RiskFTSE...

Key AUD/USD, AUD/NZD Levels to Watch

by Forex Tips
January 23, 2021
0

Australian Dollar Analysis and Talking PointsAUD/USD | Pullbacks Finding SupportAUD/NZD | Rich Levels Relative to SpreadsA bout of risk...

EUR/USD Pulls Back from July High as EU Splits COVID Recovery Fund

EUR/USD May Dip More Before Finding Support

by Forex Tips
January 23, 2021
0

EUR/USD Technical OutlookEUR/USD still at risk of trading lower in the near-termFurther weakness will bring May trend-line into focusOverall,...

Recovery Stalls Below Record High- XAU/USD Levels

Gold Weekly Reversal- Bear Market Rally or More?

by Forex Tips
January 23, 2021
0

Gold Technical Price Outlook: XAU/USD Weekly Trade Levels Gold prices are poised to snap a two-week losing streak with...

Load More

Categories

  • Crypto Strategies
  • Currency
  • For Beginners
  • Forex News
  • Forex Trading Tips & Strategies
  • Investment
  • Technical Analysis
  • Videos
Forex Pulse Detector

Categories

  • Crypto Strategies
  • Currency
  • For Beginners
  • Forex News
  • Forex Trading Tips & Strategies
  • Investment
  • Technical Analysis
  • Videos

Newsletter

  • Home
  • Contact
  • Privacy Policy
  • Store

© 2018 Forex Blog

No Result
View All Result
  • Contact Us
  • Homepages

© 2018 Forex Blog.