Gold Prices Turn Higher Alongside US Dollar Breakout

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Gold Price Talking Points:

– It’s uncommon to see each gold and the US Dollar commerce in tandem – except a wave of danger aversion is sweeping throughout international monetary markets.

– An additional drop in US Treasury yields and weak spot in US fairness markets could serve to gold’s profit within the near-term.

– Shifts in retail merchants positioning counsel that Gold costs might nonetheless fall.

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Amid a contemporary escalation of tensions within the US-China commerce struggle, international monetary markets have rapidly shifted right into a ‘danger off’ mindset. The newest information is approaching the again of the May FOMC minutes that highlighted a “affected person” Federal Reserve in no hurry to chop charges this 12 months. The mixed notion of no de-escalation of the US-China commerce struggle and a not-so-dovish Fed could have turned the tides in danger urge for food.

With US fairness markets dropping on the open on Thursday, the bid for protected have belongings has elevated, with US Treasury rallying alongside the Japanese Yen and the US Dollar. As is typical, the combination impression of decrease US Treasury yields, decrease US inventory costs, and a stronger Japanese Yen are all of the makings of a very good day for gold costs.

Indeed, gold costs are having their strongest day since May 13 although the US Dollar (by way of the DXY Index) is on the cusp of a bullish breakout try. It’s uncommon to see each gold and the US Dollar commerce in tandem – except considered by way of the lens of danger aversion.

In an surroundings the place these protected haven devices are rallying collectively, it additionally implies that rising volatility is an element that merchants have to be conscious of when considering their danger administration methods. Rising volatility could also be unhealthy for many belongings, however within the case of gold costs, rising gold volatility often goes in hand with sturdy worth motion.

Gold Price Technical Analysis: Daily Chart (April 2018 to May 2019) (Chart 1)

Gold Prices Turn Higher Alongside US Dollar Breakout - Will it Last? The gold worth technical forecast is little modified in latest days regardless of the notion of US-China commerce struggle information and the May FOMC minutes. Shutting out the noise, it nonetheless holds that the sideways vary established since mid-April remains to be being revered. If gold costs transfer above 1288.58, we might once more be topside break of the consolidation in addition to the downtrend from the February and March 2019 highs, whereas, a drop beneath 1266.18 would represent a draw back break of the consolidation in addition to the uptrend from the late-2018 swing lows.

IG Client Sentiment Index: Spot Gold Price Forecast (May 20, 2019) (Chart 2)

Gold Prices Turn Higher Alongside US Dollar Breakout - Will it Last?

Spot gprevious: Retail dealer information reveals 82.0% of merchants are net-long with the ratio of merchants lengthy to quick at 4.56 to 1. The share of merchants net-long is now its highest since November 05 when it traded close to 1230.99. The variety of merchants net-long is 8.6% greater than yesterday and 16.9% greater from final week, whereas the variety of merchants net-short is 11.4% decrease than yesterday and 26.3% decrease from final week.

We sometimes take a contrarian view to crowd sentiment, and the very fact merchants are net-long suggests spot gprevious costs could proceed to fall. Traders are additional net-long than yesterday and final week, and the mixture of present sentiment and up to date modifications offers us a stronger spot gold-bearish contrarian buying and selling bias.

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— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at [email protected]

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides





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