Gold Price Talking Points:
- Fed interest rate cut odds, as measured by Eurodollar contract spreads, are at their lowest level since May 30.
- Gold volatility, as measured by the Cboe’s ETF, GVZ (which tracks the 1-month implied volatility of gold as derived from the GLD ETF option chain) is at its lowest level since June 19.
- Retail trader positioningcontinues to warn of a potential pullback in gold prices.
The big rally in gold prices seen in June has yet to find traction anew in July. In fact, since the week of the June Fed meeting, gold prices haven’t gone anywhere: trading in a 4% range since the market close on June 21, gold prices are only down by -0.42% over the past two-plus weeks (11 days and counting) of trading. The lack of continuation in the gold price rally coincides with a pullback in Federal Reserve interest rate cut expectations in recent days.
Fed Rate Cut Expectations Shrink, Take Shine Off of Gold Prices
For the past two months, movements in Fed rate cut odds have been the principal driver of price action across asset classes. Since the June US jobs report’s better than expected result, traders have been reducing their expectations of aggressive dovish action by the FOMC over the coming months.
Prior to the June US jobs report, there was a 100% chance of a 25-bps interest rate cut in July and a 23% chance of a 50-bps in July, according to Fed funds futures contracts; after the June US jobs report, there is still a 100% chance of 25-bps cut, but now only a 1% chance of a 50-bps cuts in July. The base case scenario is now for two rate cuts in 2019.
Eurodollar contract spreads are showing similar movement. The June 2019/December 2019 Eurodollar contract spread is now discounting -63-bps, a dramatic shift from the -88-bps priced-in two weeks ago. In other words, Eurodollar contracts are also discounting two rate cuts in 2019 instead of three.
Gold Volatility Plummets Alongside Receding Fed Rate Cut Odds
If volatility is a measure of uncertainty, gold volatility’s expansion in June can be traced back to the uncertainty created by the US-China trade war and the resulting impact on Fed interest rates; the same can be said for the recent contraction in gold volatility. While other asset classes don’t like increased volatility (signaling greater uncertainty around cash flows, dividends, coupon payments, etc.), precious metals tend to benefit from periods of higher volatility as uncertainty increases the appeal of gold’s and silver’s safe haven appeal.
GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (October 2016 to July 2019) (Chart 1)
The ongoing slide in market-based expectations for aggressive dovish action by the Fed is weighing on gold volatility. Gold volatility (as measured by the Cboe’s gold volatility ETF, GVZ, which tracks the 1-month implied volatility of gold as derived from the GLD option chain) is down to 12.78, its lowest level since June 19.
Gold Prices are Stronger than the Gold Volatility Drop Suggests
During the gold volatility expansion from the all-time closing low in GVZ on May 29, 2019 at 8.86 to the 2019 high on June 25, 2019 at 17.08 (92.8% gain by GVZ), gold prices rallied by 11.2%. However, during the recent pullback in gold volatility, gold prices have not fallen as much as the recent relationship would imply: the last time that GVZ was at 12.78, gold prices were near 1350.
It would follow that gold prices are still proving resilient during the recent correction, a sign that recent price action has been corrective rather than the end of the longer-term bottoming effort and inverse head and shoulders.
Gold Price Technical Analysis: Daily Chart (July 2018 to July 2019) (Chart 2)
In our gold price technical analysis update at the end of last week, it was noted that “while the long-term forecast for gold prices remains bullish as long as the inverted head and shoulders pattern neckline is intact, traders may still want to be patient here as the odds of more weakness if not sideways price action have increased.” Since then, gold prices have maintained their sideways range between 1381.62 and 1439.14, the post-June Fed meeting swing high and low. A consolidation after an uptrend is typically the sign of a continuation effort; the sideways consolidation has a bullish bias.
To this end, unless gold prices lose 1381.62 as well as the daily 21-EMA, a moving average that hasn’t been closed below since the bullish outside engulfing bar/key reversal on May 30, then there is still good reason to believe that the long-term bullish forecast remains valid. Even so, the inverse head and shoulders pattern neckline doesn’t come back into play until 1350 at the end of July; a loss of 1381.62 would likely signal a deeper pullback into the end of the month.
IG Client Sentiment Index: Spot Gold Price Forecast (July 9, 2019) (Chart 3)
Spot gold: Retail trader data shows 67.3% of traders are net-long with the ratio of traders long to short at 2.06 to 1. The number of traders net-long is 2.5% higher than yesterday and 11.1% higher from last week, while the number of traders net-short is 0.6% lower than yesterday and 6.2% 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.
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— Written by Christopher Vecchio, CFA, Senior Currency Strategist
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Gold Price Rally Primed For a Fed Boost, Silver Price Struggling
Gold (XAU) Price, Silver (XAG) Price Analysis and Chart
- Global risk sentiment remains, interest rates look set to go lower.
- FOMC minutes on Wednesday, Fed chair Powell speaks at Jackson Hole on Friday
Q3 2019 Gold Forecast and Top Trading Opportunities
Gold Remains Underpinned and Ready to Move Higher
Gold remains bid and underpinned around current levels and is looking for the next bullish impulse to send it through its recent multi-year high. Risk sentiment, one of gold’s main drivers, remains with US-China trade talks still not confirmed, while in Hong Kong, mass protests continue, and these may well be a hot topic of discussion between the US and China. On Wednesday the latest FOMC minutes, while on Friday, Federal Reserve Chairman Jerome Powell will speak at the Jackson Hole Symposium and he may well give further insights into the central bank’s thinking around the next round of US interest rate cuts. Any hint of that the Fed wants to get ahead of the curve and cut rates aggressively will push gold higher.
The daily gold chart suggest further short-term consolidation as the market unwinds its recent heavily overbought bias. There are a few recent lows between $1,487/oz. and $1,503/oz. that will support gold in the case of any sell-off, while to the upside, $1,520/oz. before $1,528/oz. and $1.535/oz. If this latter level is broken and closed above, then $1,540/oz. is the next upside target.
Gold Price Daily Chart (January – August 19, 2019)
IG Client Sentiment data show that 62.3% of retail traders are net-long of gold, a bearish contrarian indicator. However, recent daily and weekly positional changes give us a stronger bearish contrarian trading bias.
Silver Price Struggling Around Multi-Month Highs
Silver is stuck in a short-term downtrend after hitting $17,51/oz. last week when the commodity space rallied. Since then, silver has made a series of lower high and lower lows and if price breaks below $17,00/oz. then the August 8 and 12 double low at $16.80/oz. will be tested. Below here, the 61.8% Fibonacci retracement at $16, 57/oz. should provide strong support. Silver has moved out of overbought territory and will likely remain in lock-step with the price of gold.
The gold/silver ratio remains stable around 88.60.
Silver Daily Price Chart (August 2018 – August 19, 2019)
What is your view on Gold and Silver – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at email@example.com via Twitter @nickcawley1.
Gold, Crude Oil Prices Eyeing FOMC and ECB Minutes, Jackson Hole
GOLD & CRUDE OIL TALKING POINTS:
- Gold price technical positioning hints at pullback brewing ahead
- Crude oil prices idling near $55/bbl as risk trends await catalyst
- FOMC and ECB meeting minutes, Jackson Hole in the spotlight
A risk-on mood broadly prevailed across global financial markets Friday. Cycle-sensitive crude oil prices edged higher alongside stocks. Treasury bond yields also rose as capital moved away from haven assets, undermining the appeal of non-interest-bearing alternatives and weighing on gold. The anti-risk US Dollar and Japanese Yen likewise declined.
From here, a slow start to an otherwise action-packed week might see key assets idling as traders withhold conviction before forthcoming event risk. Minutes from July’s FOMC and ECB meetings as well as the Fed’s Economic Policy Symposium due to kick off Thursday in Jackson Hole, Wyoming will probably take top billing. Political turmoil in Italy also warrants attention.
With slowing global growth top-of-mind for investors, scope for incoming monetary stimulus expansion is a critical consideration. The ECB is widely expected to ease next month, but its preferred delivery strategy is unclear. As for the Fed, the markets are priced for 75bps in additional rate cuts before year-end. Such robust hopes may be disappointed by a more reserved central bank, souring risk appetite anew.
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GOLD TECHNICAL ANALYSIS
Gold prices are treading water below the monthly swing high at 1535.03. Negative RSI divergence warns of ebbing upside momentum, hinting that a pullback might be in the cards. A break below initial support at 1480.00 exposes the 1437.70-52.95 zone. Alternatively, a push above resistance aims for a weekly chart inflection level at 1563.00.
Gold price chart created using TradingView
CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices continue to mark time near the 54.72-56.09 congestion area. Resistance defining the near-term bearish bias is now at 58.48, with a daily close above that targeting the 60.04-84 zone next. Critical support is clustered around the $50/bbl figure. Breaking below that sets the stage for a descent to challenge three-year lows just above the $42/bbl mark.
Crude oil price chart created using TradingView
COMMODITY TRADING RESOURCES
— Written by Ilya Spivak, Currency Strategist for DailyFX.com
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter
US Dollar May Rise vs Nordic FX From Trade Wars, FOMC Minutes
NORDIC FX, NOK, SEK WEEKLY OUTLOOK
- US Dollar may rise vs Nordic FX amid trade wars, FOMC minutes, Italian politics
- Critical data out of the Eurozone and US may exacerbate growing recession fears
- Commentary from officials at Jackson Hole symposium could induce risk aversion
See our free guide to learn how to use economic news in your trading strategy!
The US Dollar may extend gains vs Nordic FX if growth concerns continue to pressure cycle-sensitive currencies and redirect capital to anti-risk assets. US-China trade tensions appear to be escalating against the backdrop of growing political uncertainty in Italy. Recessionary fears may be exacerbated this week from the release of the FOMC meeting minutes and commentary from officials at the Jackson Hole symposium.
Financial Markets Brace for Deteriorating US-China Trade Relations
Early into Monday’s Asia-Pacific trading hours, US President Donald Trump held a press conference and said he was not ready to make a trade deal with China and that Huawei posed a threat to national security. Furthermore, he also said reaching a trade agreement with Beijing may be more difficult if the violence amid the protests in Hong Kong continues. Greater friction will likely continue to erode market sentiment.
FOMC Meeting Minutes: Will the Transcript Simply Re-Emphasize the Market’s Worse Fear?
As outlined in my weekly US Dollar forecast, the Greenback may rise at the expense of equity markets when the FOMC meeting minutes are released. The prospect of cheaper credit has remained a key factor buoying investor sentiment as the fundamental outlook continues to dim. What the minutes will likely show is just a more detailed message from the last meeting by Fed Chairman Powell: The Fed is not as dovish as you think.
Jackson Hole Symposium May Pressure Nordic FX if it Exacerbates Global Growth Fears
Fears about the prospect of a recession gained momentum last week after a number of recessionary signals began to sound the alarm. Commentary from officials at the symposium may exacerbate global growth fears and could pressure export-oriented currencies like the Swedish Krona and Norwegian Krone. However, amid the uncertainty and search for liquidity, the US Dollar may catch a haven bid.
G7 Summit Will be Closely Eyed by Investors Amid Rising Geopolitical Tensions
Traders will be closely monitoring the G7 Summit this week in Biarritz, France from August 22-24. Given the current state of rising geopolitical tensions around the world, looking for key developments at this conference will be crucial. Some key topics will include Facebook’s Libra cryptocurrency, US-China/EU trade and discussing the replacement of IMF chief after Christine Lagarde transitions to her post as ECB president.
ECB Minutes May Spook European Markets Despite Prospect of Stimulus
The publication of the European Central Bank’s meeting minutes is expected to carry dovish undertones after central bank president Mario Draghi said monetary authorities are entertaining QE and rate cuts. However, optimism about the prospect of cheap credit may be overwhelmed by gloomy undertones if the overall message of the transcript is prevailing conditions are so severe that they require stimulative policy measures.
A Chilling Outlook for European Growth
Italian Political Uncertainty May Sap Confidence, Weigh on Nordic FX
Political volatility out of Italy will likely sap confidence in European markets and pressure the sentiment-linked Krone and Krona. The Riksbank has repeatedly cited political risk out of the EU as a key source of uncertainty. Deputy Prime Minister Matteo Salvini will attempt to consolidate power and break away from his coalition in order to end cabinet infighting and push forward his market-disrupting fiscal agenda.
Critical Data out of EU, US May Induce Risk Aversion
Traders will also be watching the release of key US and EU economic data. The more notable ones include Eurozone inflation, flash PMIs and consumer confidence, US manufacturing PMIs and new home sales reports. A poor reading from these indicators will likely only strengthen the case for central banks to adopt accommodative monetary policy measures and will likely send a chilling message to Nordic FX markets.
SWEDISH KRONA, NORWEGIAN KRONE TRADING RESOURCES
— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter
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