Downside Targets Back on Radar as Range Snaps


Gold Talking Points

Gold slips to a fresh weekly-low ($1190)as the ISM Manufacturing survey unexpectedly climbs to 58.5 in August to mark the highest reading since 2004, and recent price action raises the risk for a further decline in the precious metal as it snaps the range-bound price action from the previous week.

Gold Price Forecast: Downside Targets Back on Radar as Range Snaps

The rebound from the 2018-low ($1160) unravels as the uptick in business sentiment sparks a bullish reaction in the U.S. dollar, and the inverse relationship between gold and the greenback may continue to materialize over the near-term as the data prints coming out of the economy encourage the Federal Reserve to further normalize monetary policy.

Keep in mind, Fed Fund futures still show market participants gearing up for a rate-hike in September and December even though Chairman Jerome Powell strikes a less-hawkish outlook for monetary policy, and the central bank may continue to prepare U.S. households and businesses for higher borrowing-costs as ‘inflation is near our 2 percent objective, and most people who want a job are finding one.

Image of Fed forecast

However, the updated Summary of Economic Projections (SEP) may influence the near-term outlook for gold and the greenback as the central bank looks to adjust the forward-guidance for monetary policy and ongoing projections for a neutral Fed Funds rate of 2.75% to 3.00% may produce headwinds for the dollar as it saps bets for an extended hiking-cycle.

Image of IG client sentiment for gold

Until then, the broader outlook for gold remains tilted to the downside especially as the IG Client Sentiment Report continues to show retail sentiment near extremes, with 82.4% of traders still net-long bullion as the ratio of traders long to short sits at 4.68 to 1. The number of traders net-long is 0.3% higher than yesterday and 0.2% lower from last week, while the number of traders net-short is 2.6% higher than yesterday and 11.3% higher from last week.

The gauge provides a contrarian view to crowd sentiment amid the persistent skew in retail positioning, with gold prices at risk for further losses as both price and the Relative Strength Index (RSI) fail to preserve the bullish formations carried over from the previous month.

Gold Daily Chart

Image of gold daily chart

  • Downside targets are coming back on the radar following the failed attempt to test the August-high ($1225), with a closing price below $1198 (38.2% expansion) raising the risk for a move back towards 1172 (61.8% retracement) to $1177 (78.6% retracement).
  • Need a break/close below the Fibonacci overlap to bring up the 2018-low ($1160), which sits just above the $1156 (61.8% retracement) hurdle.

For more in-depth analysis, check out the Q3 Forecast for Gold

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— Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.



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