Weekly Fundamental Gold Price Forecast: The Easy Part is Over

]

Advertisement

Weekly Fundamental Gold Price Forecast: Neutral

Gold prices ’ recent slump comes ahead of an expected slowdown in both fiscal and monetary stimulus out of the United States : pandemic-era unemployment benefits have ended; and the Federal Reserve’s taper announcement seems close by.

Upcoming inflation data offers a mixed bag for gold prices: US inflation is expected to slow further, while price pressures in Canada, the Eurozone, and the UK are expected to rise further.

The IG Client Sentiment Index suggests that gold prices in USD -terms (XAU / USD) have a bearish trading bias.

Gold Prices Week in Review

The rebound in the US Dollar (via the DXY Index) after the disappointing August US NFP report helped take some shine off of gold prices over the past week. And with an expected slowdown in both fiscal and monetary stimulus out of the United States having arrived – pandemic-era unemployment benefits have ended, and the Federal Reserve’s taper announcement seems close by – the once-promising fundamental backdrop for gold prices appears to be in the rearview mirror. It may be the case that gold prices benefit if the US debt ceiling debate ends poorly (a la 2011), but beyond that, there appear to be few positive catalysts over the next few months.

Gold’s losses during the first full week of September were not just US Dollar-centric, however. While gold in USD-terms (XAU/USD)fell by -2.27%, weakness was widespread: gold in EUR-terms (XAU/EUR) dropped by -1.56%; gold inGBP-terms (XAU/GBP)contracted -1.94%; and gold in JPY-terms (XAU/JPY) fell by -1.96%.

Economic Calendar Week Ahead

The second week of September, moving further away from multiple federal and religious holidays that sapped trading volumes, sees another saturated economic calendar. Indeed, several inflation reports due out over the coming days could provide some relief for gold prices, if only in the very near-term.

GOLD PRICE VERSUS COT NET NON-COMMERCIAL POSITIONING: DAILY TIMEFRAME (September 2020 to September 2021) (CHART 1)

Next, a look at positioning in the futures market. According to the CFTC’s COT data, for the week ended September 7, speculators increased their net-long gold futures positions to 228,975 contracts, up from the 199,380 net-long contracts held in the week prior. The futures market is the most net-long since the week of June 14, 2021.

IG CLIENT SENTIMENT INDEX: GOLD PRICE FORECAST (September 10, 2021) (CHART 2)

Gold: Retail trader data shows 80.31% of traders are net-long with the ratio of traders long to short at 4.08 to 1. The number of traders net-long is 0.58% higher than yesterday and 5.07% higher from last week, while the number of traders net-short is 5.36% lower than yesterday and 33.93% lower from last week.

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

— Written by Christopher Vecchio, CFA, Senior Strategist

NZD/USD to Threaten Monthly Opening Range Ahead of NZ GDP Report

]

New Zealand Dollar Talking Points

NZD/USD appears to be on track to test the monthly high (0.7170) as it trades back above the 200-Day SMA (0.7115), and the exchange rate may threaten the opening range for September ahead of New Zealand’s Gross Domestic Product (GDP) report as the economy is expected to grow at a record pace.

Advertisement

NZD/USD to Threaten Monthly Opening Range Ahead of NZ GDP Report

NZD/USD snaps the series of lower highs and lows from the start of the week on the back of US Dollar weakness, and the exchange rate may stage a larger recovery over the coming days as it trades above the 200-Day SMA (0.7115) for the first time since July.

Looking ahead, the update to New Zealand’s GDP report may trigger a bullish reaction in NZD/USD as the economy is expected to grow 16.4% per annum in the second quarter, which would mark the fastest pace of growth since recordkeeping began in 1987, and a positive development may encourage the Reserve Bank of New Zealand (RBNZ) to lift the official cash rate (OCR) off of the record low as “the Committee agreed they are confident of meeting their inflation and employment remit with less need for the existing level of monetary stimulus.”

As a result, the New Zealand Dollar may stage a larger recovery against its US counterpart as RBNZ Assistant Governor Christian Hawkesbyreveals that “a 50 basis point move was definitely on the table” at their meeting in August, but a further appreciation in the exchange rate may fuel the recent flip in retail sentiment like the behavior seen earlier this year.

The IG Client Sentiment report shows 36.38% of traders are currently net-long NZD/USD, with the ratio of traders short to long standing at 1.75 to 1.

The number of traders net-long is 8.30% higher than yesterday and 14.34% higher from last week, while the number of traders net-short is 12.39% lower than yesterday and 3.51% higher from last week. The jump in net-long interest has helped to alleviate the crowding behavior as only 35.25% of traders were net-long NZD/USD last week, while the rise in net-short position comes even as the exchange rate appears to be on track to test the monthly high (0.7170).

With that said, NZD/USD may threaten the opening range for September ahead of New Zealand’s GDP report as it trades back above the 200-Day SMA (0.7115),but the advance from the August low (0.6805) may turn out to be a correction in the broader trend as the exchange rate trades to fresh yearly lows in the second half of 2021.

NZD/USD Rate Daily Chart

Source: Trading View

Keep in mind, a head-and-shoulders formation materialized in the first quarter of 2021 as NZD/USD slipped below the 50-Day SMA ( 0.6998 ) for the first time since November, with the decline from the yearly high (0.7465) pushing the exchange rate below the 200-Day SMA ( 0.7115 ) for the first time since June 2020.

However, NZD/USD has reversed course ahead of the November 2020 low (0.6589) amid the failed attempt to close below the 0.6810 (38.2% expansion) region, with the break/close above the Fibonacci overlap around 0.7070 (61.8% expansion) to 0.7110 (38.2% expansion) pushing the exchange rate back above the 200-Day SMA (0.711 5 ) .

A break of the September opening range brings the 0.7260 (78.6% expansion) area on the radar, with the next region of interest coming in around 0.7330 (38.2% retracement) to 0.7350 (23.6% expansion).

At the same time, lack of momentum to hold above the Fibonacci overlap around 0.7070 (61.8% expansion) to 0.7110 (38.2% expansion) may push NZD/USD back towards the 0.6990 (23.6% retracement) region , with the next area of interest coming in around 0.6940 (50% expansion) to 0.6960 (38.2% retracement).

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

USD/JPY Trades Back Above 50-Day SMA to Clear Monthly Opening Range

]

Japanese Yen Talking Points

USD/JPY struggles to extend the series of higher highs and lows from the start of the week amid the pullback in longer-dated US Treasury yields, but the exchange rate may hold above the 50-Day SMA (110.02) ahead of the next Federal Reserve meeting as it clears the opening range for September.

Advertisement

USD/JPY Trades Back Above 50-Day SMA to Clear Monthly Opening Range

USD/JPY pulls back from a fresh monthly high (110.45) to largely mimic the price action in US yields, and the exchange rate may continue to consolidate as the weaker-than-expected Non-Fam Payrolls (NFP) report dampens speculation for an imminent shift in Fed policy.

The slowdown in US job growth may keep the Federal Open Market Committee (FOMC) on the sidelines as Chairman Jerome Powell acknowledges that “we have much ground to cover to reach maximum employment,” but it seems as though the central bank is on track to scale back monetary support as St Louis Fed President James Bullard argues that “there is plenty of demand for workers and there are more job openings than there are unemployed workers.”

During an interview with the Financial Times, President Bullard, who votes on the FOMC in 2022, emphasized that “you have to be prepared for twists and turns” as COVID-19 persists, with the official going onto say that “the big picture is that the taper will get going this year and will end sometime by the first half of next year.”

The comments suggest the FOMC is preparing to switch gears as Fed officials forecast two rate hikes for 2023, and it remains to be seen if the central bank will deploy an exit strategy at its next interest rate decision on September 22 with only two more meetings on tap for the remainder of the year.

Until then, swings in longer-dated Treasury yields may sway USD/JPY amid the mixed data prints coming out of the US economy, but a further advance in the exchange rate may fuel the recent flipin retail sentiment like the behavior seen earlier this year.

The IG Client Sentiment report shows 42.89% of traders are current net-long USD/JPY, with the ratio of traders short to long standing at 1.33 to 1.

The number of traders net-long is 17.17% lower than yesterday and 0.66% lower from last week, while the number of traders net-short is 17.74% higher than yesterday and 7.50% higher from last week. The decline in net-long position comes as USD/JPY tags a fresh monthly high (110.45), while the rise in net-short interest has fueled the flip in retail sentiment as 47.22% of traders were net-long the pair last week.

With that said, speculation for a looming shift in Fed policy may keep longer-dated US yields afloat ahead of the next rate decision, and USD/JPY may continue to hold above the 50-Day SMA (110.02) as it clears the opening range for September.

USD/JPY Rate Daily Chart

Source: Trading View

Keep in mind, USD/JPY negated the threat of a head-and-shoulders formation as it pushed to a fresh yearly high (111.66) in July, with the Relative Strength Index (RSI) offering a similar development as it established an upward trend during the same period.

However, the RSI has snapped the bullish formation as USD/JPY struggled to hold above the 50-Day SMA (110.12), with the exchange rate stuck in a narrow range amid the lack of momentum to hold above the moving average.

Nevertheless, the decline from the July high ( 111.66 ) may turn out to be a correction in the broader trend as USD/JPY amid the failed attempt to test the May low (108.34), with the move above the Fibonacci overlap around 109.40 (50% retracement) to 110.00 (78.6% expansion) pushing the exchange rate back above the 50-Day SMA (110.12) .

Need a break of the August high ( 110.80) to open up the overlap around 111.10 (61.8% expansion) to 111.60 (38.2% retracement) , with a move above the July high ( 111.66 ) bringing the 112.40 (61.8% retracement) to 112.80 (38.2% expansion) area on the radar.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong