Double Bottom Breakout Fading? Levels for XAU/USD

0
161

Gold Price Outlook:

  • Gold prices have not progressed much since the release of consolidation resistance in mid-April.
  • The case remains that “a failure below the three-tier level of key technical levels would suggest that a false bullish escape has developed, setting a possible return to the annual lows.”
  • According to the IG Customer Sense Index, gold prices have a bullish bias soon.

Gold Prices Don’t Shine

Gold prices may have been enjoyed bullish seasy tail winds in April, but price action over the past week-plus has proved tame, if not entirely boring. Although it is true that gold prices have not progressed much since a surge in consolidation resistance in mid-April, that doesn’t mean the market is not persisting close to a critical threshold.

Now, as we see the U.S. dollar decline even as U.S. treasuries rise – a condition set over the past year when real U.S. yields have fallen – traders may want to look at gold prices to see if the market starts to wake up with May around the corner.

Golden Forecast

Golden Forecast

Recommended by Christopher Vecchio, CFA

Get Your Free Gold Forecast

Gold Prices, Gold Volatility Ratio Offers Indications

Historically, gold prices have a relationship with volatility unlike other asset classes. During other active classes such as bonds and shares does not like increased volatility signaling greater uncertainty around cash flows, dividends, coupon payments, and so on.gold emis profit during periods of higher volatility.

GVZ (Gold Volatile) Technical Analysis: Daily Price Chart (April 2020 to April 2021) (Chart 1)

Gold Price Forecast: Is Double Bottom Failing?  Levels for XAU / USD

Gold volatility (measured by Cboe’s gold volatile ETF, GVZ, which tracks the 1-month default volatile gold as a derivative of the option chain GLD) is trading at 14.93, quickly approaching last year’s closing low in mid- April at 2:26 p.m. Gold prices and gold volatility have seen their relationship strengthen in recent days, and a further fall in gold volatility may show a charge for gold prices. The 5-day correlation between GVZ and gold prices is +0.76 while the 20-day correlation is -0.50. One week ago, on April 20, the 5-day correlation was +0.74 and the 20-day correlation was -0.61.

Technical Analysis of Gold Price Tariff: Daily Chart (March 2020 to April 2021) (Chart 2)

Gold Price Forecast: Is Double Bottom Failing?  Levels for XAU / USD

In recent weeks it has been suggested that “gold prices may have established a short-term double bottom. “So far this outlook remains valid if gold prices have not returned below the confluence of former resistance turned support: the 50% Fibonacci retracement of the 2020 low / high range at 1763.36; the November 2020 low; and the resistance from March to mid-April 2021 lateral consolidation.

If the double bottom outlook holds true, then a “simple doubling of the recent consolidation (1759.95-1677.36) over resistance suggests that gold prices could head towards 1842.54 soon – which would see gold bricks back to another set of Fibonacci retracements that proved consistent at the beginning of 2021. “Therefore, it also remains the case that” failure under the trifecta of key technical levels circa 1763.36 would suggest that a false bullish escape has developed, setting up a possible return to the annual lows sub 1700. “

Gold Price Technical Analysis: Weekly Chart (October 2015 to April 2021) (Chart 3)

Gold Price Forecast: Is Double Bottom Failing?  Levels for XAU / USD

Earlier it was noted that “reconsideration was triggered by the fall below 1763.36. Gold prices are currently viewed with a neutral bias in the weekly time frame, but the technical outlook could soon erode from neutral to bearish below 1682.27, the 38.2% Fibonacci of the 2015 low / 2020 high range. “While the wider limits of the downward parallel channel that formed in relation to the high (perpetual) August 2020 remain in place, now above 1763.36, the rebound gives long-term bulls to hope that holding the pandemic upward trend, gold prices define their nine-month low as a bull flag.

Building Confidence in Business

Building Confidence in Business

Recommended by Christopher Vecchio, CFA

Building Confidence in Business

IG CUSTOMER INDEX: GOLD PRICE BEFORE FORDE (April 27, 2021) (CHART 4)

Gold Price Forecast: Is Double Bottom Failing?  Levels for XAU / USD

Gold: Data on retailers show that 81.80% of retailers are net-long with the ratio of retailers long to short at 4.49 to 1. The number of retailers net-long is 0.69% higher than yesterday and 3.80% lower than the last week, while the number of traders net-short is 2.19% higher than yesterday and 1.20% higher than last week.

We usually consider an opposing view of crowd sentiment, and the fact that traders have long suggested that gold prices may fall further.

However retailers are less online than yesterday and compared to last week. Recent changes in sentiment warn that the current Gold price trend may reverse further despite traders remaining net-long.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist



Source

LEAVE A REPLY

Please enter your comment!
Please enter your name here