Real Rates Are Once Again Problematic in the Weekly Fundamental Gold Price Forecast

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EnclaveFX
Aug 29, 2022
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NEUTRAL FORECAST FOR THE WEEKLY FUNDAMENTAL GOLD PRICE


lGold prices had a reasonably quiet week despite significant declines on Friday. The resumed increase in real yields in developed economies is more worrisome.

lThe week's first day of business on the economic calendar is calm, followed by Wednesday's busiest day and a slowdown until Friday's release of the August US jobs data.

lThe IG Client Sentiment Index reveals a bearish trade bias for gold prices in USD terms (XAU/USD).


THE LAST WEEK IN GOLD PRICES

Gold prices experienced a reasonably calm week overall, notwithstanding the Economic Policy Symposium of the Federal Reserve that caused volatility across asset classes. The worst-performing gold cross among the majors, gold in terms of USD (XAU/USD), decreased by -0.74%. Gold in JPY terms (XAU/JPY), one of the losers, fell by -0.09%, while gold in AUD terms (XAU/AUD), the poorest performance, decreased by -0.75%. Gold in terms of EUR (XAU/EUR) led the way higher on the upside with a slight gain of +0.24%, followed by gold in terms of GBP (XAU/GBP), which rose by +0.17%.


However, Fed Chair Jerome Powell and other central bankers at Jackson Hole made it apparent that rate hikes will continue to take place over the coming months, limiting gold prices' advances on Friday. A rise in sovereign bond yields (not only US Treasury yields) and a drop in inflation expectations across developed countries immediately pushed real yields higher globally. The immediate trading environment for gold prices will become more challenging if real gains keep rising.

ADVANCED ECONOMIC CALENDAR

A sprinkling of growth, inflation, and jobs statistics from Europe and North America will be released in the closing days of August and the first few days of September. The week starts relatively quiet on the calendar, gets busiest on Wednesday, and then starts to slow down again by the weekend.


When the German inflation report for August is revealed in its preliminary form at 12 GMT on Tuesday, gold in EUR terms (XAU/EUR) will be in the spotlight. When the August US Conference Board consumer confidence data is released at 14 GMT, gold in USD terms (XAU/USD) will be in the limelight.

When the August China NBA manufacturing PMI is released at 1:30 GMT on Wednesday, gold in CNH terms (XAU/CNH) should prove volatile. When the preliminary August French inflation report (HICP) is released at 6:45 GMT, the August German unemployment change and unemployment rate follow at 7:55 GMT, and the initial August Italian inflation report (HICP) is released at 8 GMT. The flash August Eurozone inflation report (HICP) is released at 9 GMT; gold in EUR terms is again in the spotlight. When the 2Q'22 Canada GDP report is announced at 12:30 GMT, gold in CAD terms (XAU/CAD) will draw attention.

lWhen the final 2Q'22 Italian GDP report is due at 9 GMT on Thursday, August 31, gold in EUR terms will again be in the spotlight. At 14 GMT, when the US ISM manufacturing PMI report for August is released, attention will again turn to gold in USD terms.

lWith the release of the August US nonfarm payrolls report and unemployment rate set for release at 12:30 GMT on Friday, September 2, gold in USD terms is back in the spotlight for the last time.

lRetail trader data for gold shows that 84.82 percent of traders are net long, with a long-to-short trader ratio of 5.59 to 1. The number of net-long traders is down 0.60% from yesterday and up 4.84% from the previous week, while the number of net-short traders is down 17.45% from yesterday and 32.90% from the last week.

lThe fact that traders are net-long signals that gold prices may continue to decline. We usually take a contrarian stance against the attitude of the crowd.

lWe have a higher Gold-bearish contrarian trading bias due to the traders' increased net-long position compared to yesterday and last week.