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
  • Posts

    • Sainsburys full year earnings and Unilever’s first quarter trading update both say the same thing, UK consumers are in for higher prices. The war in Ukraine, supply chain issues and the effects of ongoing Covid all to blame.      
    • US Dollar (DXY) Daily Price and Analysis US Q1 GDP may stall the greenback’s advance. A 20-year high nears for the US dollar. The multi-month US dollar rally continues with the greenback printing a fresh high today ahead of the first look at US Q1 GDP at 12.30 GMT. The US dollar basket (DXY) has been boosted by renewed weakness in the Euro and the Japanese Yen, as investors move from lower-yielding to higher-yielding currencies, while safe-haven flows continue to benefit the greenback. The US growth release later in the session is expected to show a sharp slowdown from the robust Q4 figure of 6.9%. The markets are currently pricing in growth of just 1% for the first three months of this year, with the slowdown mainly due to a reduction in inventory accrual over the quarter. This release is unlikely to move the greenback, unless there is a large miss or beat, as the Fed believe that 2022 US growth will be robust enough to let them tighten monetary policy sharply without damaging the economy. The latest US Core PCE data – the Fed’s preferred inflation reading – is released on Friday and this may have more effect on the US dollar than today’s GDP data. For all market moving economic data and events, see the DailyFX Calendar. The ongoing US dollar rally has been aided by weakness across a range of G7 currencies including the Euro, the Japanese Yen, and the British Pound. The Euro continues to battle with lowly growth expectations, exacerbated by energy concerns, the British Pound is mired by weak economic data, while the Japanese Yen is in freefall as the BoJ continues with its ultra-loose monetary policy.   The US dollar continues to press higher and looks set to break above 103.96, the March 2020 high. Above here the US dollar would be back at levels last seen nearly two decades ago. The March resistance will likely hold in the short-term, especially with month-end portfolio rebalancing at the end of the week, but US dollar strength is set to continue in the months ahead. USDOLLAR (DXY) WEEKLY PRICE CHART – APRIL 28, 2022 {{THE_FUNDAMENTALS_OF_BREAKOUT_TRADING}} What is your view on the US Dollar – bullish or bearish?   Apr 28, 2022 | DailyFX Nick Cawley, Strategist
    • While Tesla has nothing directly to do with Elon Musk buying Twitter - TSLA stock closed down 12% on news that Musk may have to sell stock and use other holdings to stand against the loan to finalise the purchase of the social media giant.        
×
×
  • Create New...