Gold Price Forecast: US CPI Sparks Next Leg Lower

Gold Price Outlook:

• Gold prices are barely above 1700 after reports of US inflation in August shocked the markets.
• The US dollar (via DXY Index) is weighing on gold prices, along with a rebound, higher US Treasury yield and US real yield.
• Gold prices retain a bearish bias in the short term, as per IG Client Sentiment Index,

The Fed Won’t Pivot Yet

The August US Inflation Report (CPI) stunned financial markets today, showing more than anticipated price pressures. In turn, the US Treasury yield and US real yield have moved higher, lifting the odds of a Fed rate hike, and helping the US dollar (via the DXY Index) to offset losses it has accumulated in recent days. Huh.

The rise in US real yields is perhaps the most damaging development for gold prices. US 10-year real yields hit a new annual high today, up +100-bps at the time of writing this report. These new fundamental pressures are creating technical pressure on gold prices, which are already facing a bearish trend. September seasonal trendYou,

Gold volatility resumes as gold prices drop

Historically, gold prices have been correlated with volatility in contrast to other asset classes. While other asset classes such as bonds and stocks do not like increased volatility – indicating greater uncertainty about cash flows, dividends, coupon payments etc – gold benefits during periods of high volatility. Gold volatility is again turning higher, and in terms of higher US yields (both nominal and real) and a stronger US dollar, this remains a headwind for gold prices in the near term.

GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (September 2021 to September 2022) (Chart 1)

Gold volatility (as measured by Cboe’s Gold Volatility ETF, GVZ, which tracks the 1-month implied volatility of gold derived from the GLD Options Series) was trading at 16.46 at the time of writing this report . The 5-day correlation between GVZ and gold prices is -0.62 while the 20-day correlation is -0.84. A week earlier, on September 6, the 5-day correlation was -0.97 and the 20-day correlation was -0.67.

Gold Price Rate Technical Analysis: Daily Chart (August 2021 to September 2022) (Chart 2)

The September rally in gold prices today was short-circuited, which once again failed to cross the trend line below the March and April swing highs. Momentum is turning bearish again. Gold prices are trading below their daily 5-, 8-, 13- and 21-EMAs, and the EMA envelope is in bearish order. The daily MACD is again trading below its signal line, and the daily Slow Stochastics is trending down after failing to clear its middle line. Accordingly, What was said last week is valid: “A return to annual low levels in the near term cannot be ruled out.”

Gold Price Technical Analysis: Weekly Chart (October 2015 to September 2022) (Chart 3)

The long-term outlook remains unchanged as no significant progress has been made on the weekly time frame: “A double top remains, but a quadruple bottom around 1680 warrants a reconsideration: a massive sideways range may have formed between 1680 and 2075.” Sees 1800 as the first zone before bounce resistance is found from 1680. Sudden change in environment suggests that the daily time frame (and less like the 4 hour time frame) should focus on the coming days/weeks Because the technical indicators will take a longer time to develop on the weekly time frame.”

IG Client Sentiment Index: Gold Price Forecast (September 13, 2022) (Chart 4)

Gold: Data from retail traders shows that 89.10% of traders are net-long with a ratio of long to short traders at 8.18 to 1. Net-long traders are down 6.13% from yesterday and up 5.01% from last week, while the number of traders is down 30.18% from yesterday and 28.57% from last week.

We generally take the opposite view of crowd sentiment, and the fact that traders are net-long suggests that gold prices may continue to decline.

Traders are more net than yesterday and last week, and the combination of current sentiment and recent changes gives us a trading bias as opposed to a strong gold bearish trend.

— Written by Christopher Vecchio, CFA, Senior Strategist