- Gold prices have fallen sharply this week due to expectations of higher interest rates from the Fed and deteriorating correlations between gold volatility and prices.
- Technically, gold broke below key support levels, erasing bullish signals and potentially starting a deeper decline back to $1,770 support. Sentiment data also shows traders are heavily net long, suggesting prices may continue falling.
- Near-term technical indicators are extremely oversold on lower timeframes but still heading lower, with resistance around $1,792 and support at $1,771. The overall technical structure has weakened, implying gold could trade choppily within its range for now.
2. Points To Be Discussed Today:
โข Gold Price Outlook
โข Scuffed Up By Rising Rates
โข Correlations Deteriorate Between Gold Volatility
And Gold Prices
โข GVZ (Gold Volatility) Technical Analysis
โข Gold Price Rate Technical Analysis
โข IG Client Sentiment Index
โข Gold Prices May Continue To Fall
3. Gold Price Outlook
โข Gold prices have been obliterated this week as
Fed rate hikes have surged around commentary
from Fed Chair Powell and incoming Fed Vice
Chair Brainard.
โข A return back to the uptrend from the August
2021 and September 2021 swing lows near 1770
is in focus in the short-term before support
comes into play.
โข According to the IG Client Sentiment Index, gold
prices now have a bearish bias in the near-term.
4. Scuffed Up By Rising Rates
โข Itโs been a rough week for gold prices, triggered
by US President Joe Bidenโs nominations of Fed
Chair Jerome Powell to a second term and Fed
Governor Lael Brainard to Vice Chair.
โข Both Fed policymakers used their remarks on
Monday to underscore their focus on reducing
inflation pressures, provoking a sharp escalation
in Fed rate hike odds, nominal US Treasury yields,
and a drop in US breakeven inflation rates โ
forward-looking market expectations of price
pressures.
5. Scuffed Up By Rising Rates - I
โข The net-result has been a dramatic surge in US
real yields.
โข If gold prices had been benefiting in recent
weeks from the drop in US real yields to all-
time lows, then bullion just had its most
potent catalyst torn asunder.
6. Scuffed Up By Rising Rates - II
โข True, US inflation rates are expected to stay
elevated over the coming months, which may
cushion gold prices from a significant fall.
โข But the Fedโs renewed focus on combating
inflation vis-ร -vis a faster tapering schedule
and potential hiking rates sooner than
anticipated may duly prevent a significant rally
by gold prices henceforth.
7. Correlations Deteriorate Between Gold
Volatility And Gold Prices
โข Historically, gold prices have a relationship
with volatility unlike other asset classes.
โข While other asset classes like bonds and
stocks donโt like increased volatility โ signaling
greater uncertainty around cash flows,
dividends, coupon payments, etc. โ
gold tends to benefit during periods of higher
volatility.
โข This may not be one of those times, however.
8. GVZ (Gold Volatility) Technical Analysis: Daily Price
Chart (November 2020 To November 2021)
9. GVZ (Gold Volatility) Technical Analysis
โข Gold volatility (as measured by the Cboeโs gold
volatility ETF, GVZ, which tracks the 1-month implied
volatility of gold as derived from the GLD option chain)
was trading at 16.57 at the time this report was
written.
โข The relationship between gold prices and gold volatility
has eroded in recent days as the uptick in volatility has
been marked by a sharp decline in gold prices.
โข The 5-day correlation between GVZ and gold prices is -
0.33 while the 20-day correlation is +0.56.
โข One week ago, on November 16, the 5-day correlation
was +0.67 and the 20-day correlation was +0.75.
10. Gold Price Rate Technical Analysis: Daily Chart
(May 2020 To November 2021)
11. Gold Prices Were Flagging Last Week
โข Gold prices were flagging last week, but failed
to live up to their bullish potential.
โข It was previously noted that โa move through
Tuesdayโs high of 1877.14 would signal the
continuation of the bullish breakout move
back towards the August high at 1916.62.โ
โข 1877.14 was never overtaken, and what soon
followed was an absolute gutting of gold
prices.
12. Gold Prices Were Flagging Last Week - I
โข Instead, a significant bearish technical reversal has
transpired, throwing out any previous technical inclinations
of a sustained rally.
โข In falling back below a trifecta of key levels around 1835 โ
the descending trendline from the August 2020 (all-time
high) and June 2021 swing highs, inverse head and
shoulders neckline at the summer swing highs, and the
ascending trendline from the May 2019, March 2020, and
March 2021 lows โ a deeper setback may have just begun.
โข A return back to the uptrend from the August 2021 and
September 2021 swing lows near 1770 is in focus in the
short-term before support comes into play.
14. Gold Prices Have Fallen Back
โข Itโs been previously noted that โthe 1835 level
may soon be broken warranting a shift in the
longer-term outlook from neutral to bullish.โ
โข Alas, gold prices have fallen back below 1835,
suggesting that a false bullish breakout
transpired.
โข It may be the case that gold prices, now back
within their triangle in place since June 2020, are
due to trade lower in a choppy fashion for the
foreseeable future.
15. Gold Pricesโ Technical Structure
โข Gold pricesโ technical structure on the weekly
timeframe has eroded quickly.
โข Gold prices are now below the weekly 4-, 13-,
and 26-EMA envelope, which is in neither
bearish nor bullish sequential order.
โข Weekly MACDโs climb through its signal line
has been halted, while weekly Slow
Stochastics are dropping from overbought
territory for the first time this month.
17. Gold: Retail Trader Data
โข Gold: Retail trader data shows 74.67% of
traders are net-long with the ratio of traders
long to short at 2.95 to 1.
โข The number of traders net-long is 14.98%
higher than yesterday and 12.49% higher from
last week, while the number of traders net-
short is 4.08% higher than yesterday and
18.59% lower from last week.
18. Gold Prices May Continue To Fall
โข We typically take a contrarian view to crowd
sentiment, and the fact traders are net-long
suggests Gold prices may continue to fall.
โข 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.
19. Gold Technical Indicators
โข Gold is extremely oversold according to
technical indicators on the 4-hour chart, which
anyway keep heading firmly lower, as the price
pressures its daily low.
โข In this time frame, the metal is developing below
all of its moving averages, having broken below
the 200-SMA for the first time in three weeks.
โข Support levels: 1,771.95 1,758.80 1,745.20
โข Resistance levels: 1,792.00 1,803.1,817.75
