As Prices Dwindle, Retail Traders Become More Bullish

Gold, Silver, Retail Trader Positioning, Technical Analysis – IGCS Commodities Update

• Gold and silver prices continue aiming cautiously lower
• Retail traders are now becoming increasingly bullish
• Is this a warning sign that XAU/USD, XAG/USD may fall?

Gold and silver prices have been cautiously aiming lower in recent weeks in what has been a pause from the general uptrend since the end of last year. Looking at IG Client Sentiment (IGCS), retail traders have responded by increasing their upside exposure in these precious metals as of late. IGCS tends to function as a contrarian indicator. With that in mind, could further pain be ins tore for XAU/USD and XAG/USD?

Gold Sentiment Outlook – Bearish

The IGCS gauge shows that about 63% of retail traders are net-long gold. Since most traders are still biased to the upside, this hints that prices may fall down the road. Meanwhile, downside exposure has decreased by 3% and 12% compared to yesterday and last week, respectively. With that in mind, the combination of overall exposure and recent changes in positioning hint that further losses might be in store for gold.

XAU/USD Daily Chart

From a technical standpoint, gold has continued to extend losses in the aftermath of a Bearish Engulfing candlestick pattern since the beginning of April. Meanwhile, prices have made downside progress through the 20-day Simple Moving Average. That is now placing the focus on the 100-day SMA, which could hold as support and reinstate the broader upside focus. Otherwise, a turn higher places the focus on 2022 peaks.

Chart Created in Trading View

Silver Sentiment Outlook – Bearish

The IGCS gauge reveals that about 65% of retail traders are net-long silver. Since most traders are biased to the upside, this hints that prices may continue falling down the road. Meanwhile, downside exposure has decreased by 7.56% and 38.89% compared to yesterday and last week, respectively. With that in mind, overall exposure and recent changes hint that further losses might be due for silver.

XAG/USD Daily Chart

Silver prices have also continued lower in the aftermath of a Bearish Engulfing candlestick pattern. While progress has been slow, prices are also beneath the near-term 20-day SMA. Key support seems to be the 24.628 inflection point from the February 2nd high. This price seems to have held consistently well since the end of March. Breaching this point opens the door to extending lower.

Chart Created in Trading View

— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com