– Gold prices exited their 2019 triangle to the downside earlier this week.
– Revived concerns over global growth may offset broader risk trends that have seen the safe haven currencies and Gold suffer in recent days.
– Following the breakdown, recent changes in positioning suggest that traders have been quick to abandon their Gold longs.
Gold prices have had a rough few days in the run-up to Good Friday and Easter Monday. Having rapidly reversed from symmetrical triangle resistance and having come into symmetrical triangle support, we were watching for a potential triangle breakdown at the start of the week. Now, Gold prices have cratered to a fresh 2019 low, breaking out of the symmetrical triangle to the downside in the process.
It’s important to recognize that the key developments that have undercut the Japanese Yen’s and US Dollar’s appeal as safe havens — Brexit being punted to October, receding concerns over the US-China trade war, and Q1’19 US GDP expectations rebounding – have also served to undermine Gold.
But traders need to be aware that the opposite will also be true: should these events flare up again – and it looks like Brexit will be back in the headlines as soon as next week – and demand for the Japanese Yen and US Dollar increases, it is likely that Gold will benefit as well.
Gold Technical Forecast: Daily Price Chart (April 2018 to April 2019) (Chart 1)
Now that Gold prices have broken through symmetrical triangle support and have established a fresh 2019 low, technical indicators have started to shift in a more bearish direction. Momentum continues to accelerate to the downside: price is below the daily 8-, 13-, and 21-EMA envelope; and both daily MACD and Slow Stochastics are pointing lower below their respective median/neutral lines.
Earlier this week it was noted that “A move below the April low of 1280.80 would be a significant development in the days ahead and suggest that Gold prices may see a deeper setback towards the rising trendline from the August, September, and November 2018 lows near 1260 by the end of the month.”
Now that the first condition has been met, a return towards 1260 is eyed. Only if price was able to climb back into the triangle consolidation would the near-term bearish forecast for Gold prices be invalidated; that would occur above 1284.20, where the daily 8-EMA resides.
IG Client Sentiment Index: Spot Gold Price Forecast (April 18, 2019) (Chart 2)
Spot Gold: Retail trader data shows 74.4% of traders are net-long with the ratio of traders long to short at 2.91 to 1. The number of traders net-long is 2.4% higher than yesterday and 11.4% higher from last week, while the number of traders net-short is 3.7% higher than yesterday and 4.3% higher 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. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed Spot Gold trading bias.
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— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail at [email protected]
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