The Better Precious Metal Shows Its Mettle

The Better Precious Metal Shows Its Mettle


Gold Price Forecast Talking Points:

  • The ONE Thing:The US Dollar remains a headwind to the rise in Gold, and the technical analysis duo of Ichimoku & Trendlines shows the favorable technical picture of XAU/USD is hanging by a thread
  • The Gold/Silver ratio has broken above its historical extreme, and the effect of Bitcoin and cryptos as a new-haven should not be underestimated
  • Sentiment holds broadening bearish contrarian bias per IGCS for Gold

Technical Forecast for the gold price / XAUUSD: Neutral in USD Terms, Bullish in Non-USD Terms

Gold

Chart Source: ProRealTime charting, IG UK Price Feed. Created by Tyler Yell, CMT

For Gold bulls, the price action of this week should likely earn a tally in the loss column, at least if it is looked to in US Dollar terms. The chart above shows a rejection of the gold price into resistance and bullish sentiment came roaring back.

The ‘Sell in May’ moniker definitely held its validity thus far with all major stock indices, except the Swiss Stock Market down in USD terms. This helped Gold to rally in its traditional form as a haven asset or hedge that was discussed last week.

However, with the strengthening US Dollar, it is difficult to favor Gold in USD terms. Rather, traders may prefer to only look at a long-Gold position as expressed in other currencies like the EUR, GBP, or CNY.

Gold in CNH vs. Gold in USD

Gold

Data source: Bloomberg

Gold-Silver Ratio Takes Out 20-Yr Range

Gold

Data source: Bloomberg

The Gold-Silver ratio is a way that traders have looked to likely limits of how far gold or silver could strengthen. However, the rules may become re-written thanks to cryptos taken a lot of the haven-demand.

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Above you can see the ratio has moved toward 90, whereas historically the 80-level has been firm resistance. It is possible that historical limits may be stretched due to the silver, historically referred to as

‘poor man’s gold’ being eschewed in favor of Bitcoin.

Sentiment Insight: Bias for Downside Emerges From IG Client Sentiment

Gold

Data source: IG Client Sentiment

Retail trader data shows 77.0% of traders are net-long with the ratio of traders long to short at 3.35 to 1. The number of traders net-long is 2.5% higher than yesterday and 3.6% lower from last week, while the number of traders net-short is 11.7% lower than yesterday and 19.5% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot 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 Spot Gold-bearish contrarian trading bias (emphasis mine.)

We’ll see.

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—Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as trading educational resources. Read more of Tyler’s Technical reports via his bio page.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

Talk markets on twitter @ForexYell

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