Jump to content

Gold Price Forecast Q2 2022: Fundamental and Technical Analysis


Recommended Posts

Gold Price Forecast Q2 2022: Outlook Proves Mixed

Apr 2, 2022 |  DailyFX
Christopher Vecchio, CFA, Senior Strategist

Gold Price Forecast Q2 2022: Outlook Proves Mixed

There’s no two-ways about it: gold prices outperformed our expectations in Q1’22. Our rationale for not taking a bullish outlook on gold was, and still is, well-grounded: central banks, including the Federal Reserve, have begun to winddown pandemic-era stimulus efforts, with rate hike cycles just getting started.

At least in the short-term, a potent catalyst arrived that trumped interest expectations: Russia’s invasion of Ukraine. With global financial markets upended and commodity supply chains in disarray, inflation expectations skyrocketed again. Instead of rising real yields, we saw falling real yields from mid-February through the end of March.

Alas, with the prospect of a Russia-Ukraine ceasefire gathering steam towards the end of Q1’22, it’s possible that sanctions against Russia are lifted, thereby removing pressure on global commodity supply chains. In turn, inflation expectations could backoff, and consistent with the longer-term narrative of central banks raising interest rates, real yields could start to rise again.

Therein lies the challenge for gold prices in Q2’22: unless there is a dramatic escalation in the conflict between Russia and Ukraine that ensnares the European Union and the United States into a protracted dispute, the catalyst that drove gold prices higher in recent months is likely to be short-lived.

US REAL YIELDS PROVE PROBLEMATIC

Despite the disruption created by the Russian invasion of Ukraine, the same obstacles remain for gold prices henceforth. With central banks acting to tamp down persistently higher realized inflation in the short-term, longer-term inflation expectations should begin to ease back, pushing down real yields and thus preventing gold prices from holding onto recent gains.

Gold, like other precious metals, does not have a dividend, yield, or coupon, thus rising US real yields remain problematic. In other words, when other assets are offering better risk-adjusted returns, or more importantly, offering tangible cash flows during a time when inflation pressures are raging, then assets that don’t yield significant returns often fall out of favor. Gold behaves, in effect, like a long duration asset (as measured by modified duration, not Macaulay duration); a zero-coupon bond.

Gold Futures vs US Treasury Nominal (Chart 1)

Please add a description for the image.

Source: Bloomberg

The facts on the ground haven’t changed and will become a greater influence should the Russia invasion of Ukraine stop. Monetary easing enacted by central banks and fiscal stimulus provided by governments are now firmly in the rearview mirror. A ceasefire between Russia and Ukraine will relieve pressure in food and energy prices, which in turn will help reduce inflation expectations. But because of how high inflation readings are in economies like the EU, the US, and the UK, central banks will still raise interest rates aggressively over the course of 2022.

Please add a description for the image.

Source: Bloomberg

It thus stands to reason that rising real rates are a meaningful obstacle for gold prices over the next few months. Over the past five years, gains by US real yields have been generally correlated with losses by gold prices. A simple linear regression of the relationship between the weekly price change in gold prices and the weekly basis points change for the US 10-year real yield, reveals a correlation of -0.34. As a rule of thumb, rising real yields are bad for gold prices.

Barring World War 3, it’s difficult to envision how the environment becomes any more appealing for gold prices from a fundamental perspective. Yes, there is chatter about how the EU and US sanctions against Russia threaten US Dollar hegemony, which ultimately may provoke more countries to abandon USD-denominated reserves and instead allocate more reserves to gold. But that’s a longer-term story, one that won’t play out over the next quarter, or even year, particularly as over 40% of global trade continues to be denominated in USD (and another 35% in EUR).

In short, gold prices have two likely paths forward: sideways (as the Russian invasion of Ukraine continues, keeping inflation expectations elevated as central banks raise rates, keeping the status quo in real yields); or lower (as the Russian invasion of Ukraine ends, sinking inflation expectations as central banks raise rates, pushing higher real yields).

Link to comment

Gold Price Q2 Technical Forecast: Bulls Rebuffed

Apr 1, 2022 |  DailyFX
James Stanley, Senior Strategist

Gold Technical Forecast: Gold Break Rejected- XAU/USD Bulls ... | MENAFN.COM

SELLERS PICK UP STEAM

There was a quick flicker of excitement in Gold last quarter, and that ran parallel to the same fear that was injected into the global order as Russia invaded Ukraine. Gold prices broke out aggressively in late-February and early-March, right along with equities hitting fresh lows. The Nasdaq even temporarily took a trip into bear market territory.

But that fear left quickly in the middle of March as the Federal Reserve began lift-off by hiking rates by 25 basis points. And, from where we’re at, it seems as though this will be the start of something more than the end as the bank is expected to hike many more times this year, with some forecasts even looking for as many as eight more hikes in the final nine months of 2022 trade. Add in the expectation for Quantitative Tightening and this can make for a troubling backdrop for Gold into Q2, and the chart appears to reflect this well.

The Q1 breakout was unable to hold above the psychological $2k/oz level, with sellers picking up steam the week of the FOMC rate decision. That pushed prices right back to a key zone of support around the prior all-time-high from 2011, taken from around the 1900 handle.

SPOT GOLD (XAU/USD) – MONTHLY CHART – OLD RESISTANCE, CURRENT SUPPORT

Gold Price Q2 Technical Forecast: Bulls Rebuffed

Chart created with TradingView

From the weekly chart below, we can see where gold prices spent much of the past two years including almost all of 2021 in a rather consistent range. Support was plotted just below 1700 while resistance held around 1900, which is what helps to make this zone so incredibly important.

SPOT GOLD (XAU/USD) – WEEKLY CHART

Gold Price Q2 Technical Forecast: Bulls Rebuffed

Chart created with TradingView

At this point we have support at prior resistance and for bulls, this can be used to substantiate continued upside. The question then becomes whether the trader is comfortable with Gold prices moving above and holding the $2k figure, which, at this point, there’s little evidence of. We’ve had but one weekly close – ever – with Gold above the $2,000/oz level.

And from the weekly chart, a recently confirmed evening star formation has opened the door for reversal potential. The pattern would be invalidated on a breach of the high which is very close to the prior all-time-high set in the Summer of 2020 at 2089.

The technical forecast for Gold will be set to bearish for Q2, 2022.

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
      19,999
    • Total Posts
      87,973
    • Total Members
      69,146
    • Most Online
      7,522
      10/06/21 10:53

    Newest Member
    Ammanuel10
    Joined 26/09/22 07:04
  • Posts

    • Why is market closed for F&C Investment Trust
    • Gold, Brent crude and lumber head lower as recessionary fears lift the dollar Gold, Brent crude and lumber come under pressure, as growth concerns and a strengthening dollar hurt sentiment. Source: Bloomberg  Joshua Mahony | Senior Market Analyst, London | Publication date: Monday 26 September 2022  Gold falls into yet another multi-year low Gold been hit hard at the hands of the dominant dollar, with the strength of the greenback helping to eradicate any haven demand for this precious metal. With price having dropped back below the $1677 threshold, we are into levels not seen since the early days of Covid (April 2020). With price having consolidated over the course of the past week, the decline through $1654 brings about a new phase of this sell-off. This points towards expectations of further downside to come, with another consolidation/retracement phase likely to take shape soon enough. Both the intraday and long-term trend currently indicate a potential continuation of the ongoing bearish pattern, with bearish positions favoured unless we see otherwise. Thus, short positions remain prudent until we see the $1688 level breached. Source: ProRealTime Brent crude declines into eight-month low Brent crude has managed to breach the $87 support level dating back to early September, with price falling into the lowest level since January. The demand picture certainly remains under the microscope given expectations of widespread recessions, and a cost-of-living crisis that will likely curtail spending habits. There is still a good chance that we see some support if Iranian talks break down or the US reverses SPR releases and starts to build up supplies once again. This latest decline has taken price into the lower Bollinger Band, with a descending trendline also accompanying price around current levels. With that in mind, there is a chance we see price hold up before long, with a decline through this zone needed to signal a potential drive into 76.4% Fibonacci support at $81.25. To the upside, any near-term strength looks like a potential selling opportunity, with a bearish view holding unless price rises through the $95.19 swing-high. Source: ProRealTime Lumber finally breaks through $460 support Lumber has been under pressure over the course of the past week, with price finally breaking through the critical $460 support level. That has brought about a fresh two-year low for this commodity, as concerns around the housing market and economic growth bring questions over demand going forward. The fact that we have finally cleared out this critical support level means we are likely to see a bearish continuation here, with any near-term gains perceived to be a retracement of the sell-off from $578. Unless that price is breached, short-term strength is seen as a selling opportunity within a clear long-term downtrend. Source: ProRealTime
    • Early Morning Call: GBP/USD at lowest level since decimalisation in 1971 GBP in the mire dropping to a record low against the dollar, but down across the board. Europe expected to open mixed after the DAX and CAC hit a new low for the year on Friday. FTSE 100 is up while Asia is down overnight.    Jeremy Naylor | Writer, London | Publication date: Monday 26 September 2022  Risk-off prevails in APAC Risk-off sentiment prevailed in the Asia-Pacific region overnight, as investors reacted to Friday’s selloff in European and US equity markets and saw the dollar basket briefly rising above 114 in the early hours. UK mini-budget Sterling continues to lose ground against all major currencies as traders are still assessing the “mini-budget” unveiled by the Chancellor of the Exchequer, Kwasi Kwarteng. GBP/USD hit an all-time low of $1.0322 overnight, falling as much as 5% on Friday’s close. The FTSE 100 is starting the week higher paring some of Friday’s losses. The index dropped as much as 200 points after the presentation of the “mini-budget”, a hit three-month low. Among the biggest fallers in Friday's session were energy and materials producer, a direct consequence of a weaker pound. BP PLC, Shell PLC, Glencore PLC (LSE), Antofagasta PLC and Anglo American PLC all fell in excess of 5%. Macro overview In Japan, the Jibun Bank Manufacturing PMI fell to 51 in September, from 51.5 in August. This is the 20th straight month of expansion in the sector, but the lowest since January 2021. Services PMI rose to a three-month high of 51.9, from 49.5 in August, which meant that composite PMI climbed back to expansion territory at 50.9. Markets await Germany Ifo business climate at 9am. Economists expect the index to fall for a third straight month in September, to 87 from 88.5 in August. The same goes for the other two indicators, current conditions and expectations, expected at 96 and 79 respectively. This week will be a testing week for the DAX. German Gfk consumer confidence on Wednesday is expected to fall to a new record low in October. On Thursday, consumer price index (CPI) is forecast to jump to 9.5% in September, from 7.9% the previous month. And on Friday, retail sales in the country are anticipated to drop by 5.1% in August, twice the decline posted in July. A couple of indicators are expected in the US: the Chicago Fed national activity index for August and the Dallas Fed manufacturing index for the month of September. The dollar is very likely to stay strong. Overnight the dollar basket set a new two-decade high, rising as high as 114.41. Commodities On Friday afternoon, WTI fell below $80 per barrel for the first time since January. The highest point last week for WTI was on Wednesday morning, hours before the Federal Reserve (Fed) raised Fed funds rates by another 75-basis points. Since the announcement, oil dropped as the dollar strengthened. Last week was the fourth weekly decline for WTI and Brent, which was a first since November last year, and well on track for a fourth consecutive monthly decline, which hasn't happened since the first four months of 2020. Last Friday, Baker Hughes total rig count rose by one to 764. That's 243 up on this time last year. The number of oil rigs in operation increased by three to 602, while the operational gas rigs fell by two to 162. Dollar strength is also affecting base metals. Copper and zinc now trade at two-month lows. Aluminium ($5 Mini Contract) is at its lowest since March 2021. Lumber showed signs of weakness in the second part of last week, after Fed Chairman, Jerome Powell, highlighted the imbalances of the US housing market, and has now gone through an important support level, back to levels not seen since July 2020. Finally, a quick look at gold, which fell as low at $1,640 on Friday, its lowest level since April 2020.     This is here for you to catch up but if you have any ideas on markets or events you want us to relay to the TV team we’re more than happy to.
×
×
  • Create New...