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Gold Prices Snap Six-Week Losing Streak As US Dollar Slides

By Kurt Osterberg · On August 26, 2018

Fundamental Forecast for Gold: Bullish

GOLD TALKING POINTS:

Gold rebounds from multi-year support gathers pace post-Powell; supportive above 1180

Gold prices snapped a six-week losing streak with the precious metal up more than 1.9% to trade at 1206 ahead of the New York close on Friday. The recovery comes amid continued strength in broader risk markets, with all three major US indices closing higher on the week. Is this a major low in gold? The technicals suggest we’ll find out rather soon.

JEROME POWELL STICKS TO THE SCRIPT AT JACKSON HOLE

Comments made by Fed Chair Jerome Powell at the annual economic symposium in Jackson Hole Wyoming offered little guidance to the path of monetary policy. The Chairman downplayed concerns that the US economy was overheating while noting that gradual interest rate hikes remain appropriate given the underlying strength. The remarks fall broadly in-line with market expectations with Fed Fund Futures still pricing a 67% chance for a fourth hike this year in December.

For gold, increasing geo-political tensions and what looks to be a prolonged trade war / tariff skirmish has kept a floor under gold over the past week. A recent bout of weakness in the US Dollar has further fueled the rebound in bullion prices with the DXY turning aggressively lower this week from key structural resistance. Heading into next week the focus is on follow through with gold testing near-term resistance into the close of the week. With price, momentum, and sentiment all coming off extremes, the burden is on the bulls to get through this level and validate that a more significant low is in price.

SPOT GOLD IG TRADER SENTIMENT

A summary of IG Client Sentiment shows traders are net-long Gold- the ratio stands at +4.0 (80.0% of traders are long) –bearish reading

The percentage of traders net-long is now its lowest since June 5th

Long positions are1.5% lower than yesterday and 3.3% lower from last week

Short positions are 14.4% higher than yesterday and 32.7% higher from last week

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Spot Gold price trend may soon reverse higher despite the fact traders remain net-long.