Gold Price Forecast: From Bull Flag to Symmetrical Triangle - Levels for XAU/USD
HOW THE TABLES TURN
Throughout July, we’ve been monitoring gold prices as it appeared that decision time was soon approaching. It was previously noted that “Technical gauges of momentum have indeed started to turn higher, but questions remain. As the saying goes, ‘more wood needs to be chopped’ before gold prices exit ‘the technical woods.’ Since then, gold prices have been chopping that wood, sitting along the brush line now, with the clearing in sight.”
Indeed, gold prices may have finally stepped into that clearing. In what should be one of the best fundamental environments in recent history – ongoing stimulus efforts by the Federal Reserve, record deficits and debt burdens among developed economies, and all-time lows in negative US real yields – gold prices are finally starting to perk up.
GOLD VOLATILITY AND GOLD PRICES IN SYNC, SORT OF
Historically, gold prices have a relationship with volatility unlike other asset classes. While other asset classes like bonds and stocks don’t like increased volatility – signaling greater uncertainty around cash flows, dividends, coupon payments, etc. – gold tends to benefit during periods of higher volatility. But it doesn’t appear to be market instability (e.g. higher volatility) that’s helping support the rally in gold prices right now.
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) was trading at 15.16. The relationship between gold prices and gold volatility is eroding as gold prices rally while gold volatility falls (which is atypical). The 5-day correlation between GVZ and gold prices is -0.11 while the 20-day correlation is -0.41. One week ago, on July 22, the 5-day correlation was -0.04 and the 20-day correlation was -0.68.
GOLD PRICE RATE TECHNICAL ANALYSIS: DAILY CHART
Gold prices are attempting to clear the hurdle that is the descending channel measured against the August 2020 and January 2021 swing highs, but has thus far been rebuffed by the cluster of Fibonacci levels in the low-1830s. It was previously noted that “it would appear that gold prices aren’t out of ‘the technical woods’ until 1835 is achieved,” and its now possible that our bullish confidence threshold is obtained.
Reference by: Christopher Vecchio, CFA, Senior Currency Strategist
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