Gold Price (XAU/USD) Struggling to Break Meaningfully Higher

GOLD (XAU/USD) ANALYSIS, PRICE, AND CHART

• Gold struggling to hold short-term channel support.

• Retail traders remain heavily long, reduce their short positions.

The recent recovery in gold is likely to face fresh headwinds next week, leaving the short-term trend support under pressure. After hitting a multi-month low at the end of June, gold has pushed higher forming a short-term uptrend channel with the precious metal currently trading just above $1,800/oz. The support break of the medium-term channel, formed between the end of March and mid-June produced a sharp sell-off from $1,878/oz. to $1,761/oz. just below the 50% Fibonacci retracement level at $1,764/oz.

Gold has been supported of late by the turmoil seen in the US Treasury market where yields have been falling to multi-month lows. The 10-year US Treasury yesterday printed at 1.25%, before edging back above 1.30%, as traders and investors sought to cover their short positions. Next week the US Treasury market will come under scrutiny when a chunk of 3-, 10- and 30-year Treasurys are put up for sale in the first half of the week. While the short-dated UST should place with relative ease, the $38 billion of 10-year notes (Monday) and the $24 billion of 30-year bonds (Tuesday) may prove slightly trickier. If the market decides to push yields higher ahead of these auctions, to make them more attractive, this will weigh on gold and push the price of the precious metal lower. The sale of the longer-dated USTs on Tuesday may also face additional headwinds with the release of the latest US inflation figures. While US inflation is expected to ease back - core m/m is forecast at 0.4% compared to 0.7% in May – any move higher may well see traders demand extra yield to put the 30-year USTs on their books.

IG trader sentiment, see below, also shows that retail has been cutting back their short positions over the last week, leaving them heavily long of gold. A contrarian look at this suggests that gold may move lower.

Client sentiment data show 87.13% of traders are net-long with the ratio of traders long to short at 6.77 to 1. The number of traders net-long is 1.20% lower than yesterday and 1.53% lower from last week, while the number of traders net-short is 16.70% lower than yesterday and 10.15% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall.Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Gold-bearish contrarian trading bias.