Gold Price Fundamental Forecast: Bullish
Q3 2019 Gold Forecast and Top Trading Opportunities
Gold Boosted by a Variety of Positive Drivers
I remain bullish for gold in the short-term although current levels need to be consolidated before the next leg higher. The fundamental backdrop for the precious remains positive, with the latest boost coming from dovish commentary from NY Fed vice chair John Williams who said that the central bank should stay ahead of the curve especially if the data shows the economy weakening. While these comments were subsequently said to be from academic research, the fact that a major Fed official voiced them gives a clue into the central bank’s thinking. The next FOMC meeting is at the end of July with a 25-basis point now fully priced-in while market odds of a 50bp cut have risen sharply.
Gold has also been in demand from central banks over the past few weeks, China and Russia in particular, who have been diversifying away from the US dollar and the current trend for central banks to weaken their currency to gain competitiveness. With gold priced in US dollars, any weakness in the currency gives a boost to the price of the precious metal. Large swathes of the global bond market also now reside in negative yield territory, weakening currencies further and making fixed income, a traditional risk-off asset class, unattractive for investors.
In addition, global tensions continue with the US-China trade dispute still unresolved, and with the US now training its sights on the EU, while the US and Iran remain at loggerheads, adding to the global risk-off trade.
Against this backdrop, and with fears that equity valuations are becoming stretched, gold’s safe haven status has become attractive yet again and this will continue to underpin any move higher over the short- to medium-term.
Gold Price Daily Chart (October 2018 – July 19, 2019)
The IG Client Sentiment Indicator shows traders are 63.4% net-long with the ratio of traders long to short at 1.73 to 1. The number of traders’ net-long is 0.4% higher than yesterday and 1.9% lower from last week, while the number of traders net-short is 4.5% lower than yesterday and 18.5% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggest Spot 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 Spot Gold-bearish contrarian trading bias.