Weekly Fundamental Gold Price Forecast: Rising Real Rates Weigh

Weekly Fundamental Gold Price Forecast: Neutral

• Gold prices are coming off of one of their worst weeks of 2022, and the upcoming slate of economic data may not provide much solace.
• With major central banks still raising interest rates and inflation expectations receding, the environment remains difficult for gold prices.
• The IG Client Sentiment Indexsuggests that gold prices in USD-terms (XAU/USD) have a bearish trading bias.

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Gold Prices Week in Review

Gold prices are coming off of one of their worst weeks in 2022, as the combination of rising sovereign bond yields and declining inflation expectations have lifted real yields across G10 currencies. Gold in USD-terms (XAU/USD) closed down by -3.71%, the worst loss since the second week of May. This price action was commonplace, though not as dire as many major currencies declined versus the US Dollar. Gold prices in EUR-terms (XAU/EUR) closed lower by -1.43%, gold in GBP-terms (XAU/GBP) dropped by -3.25%, and gold in JPY-terms (XAU/JPY) sank by -3.11%.

Economic Calendar Week Ahead

The turn into the middle of July will produce a global smattering of data releases related to growth, inflation, and central banks – all of which are consequential for gold prices. The environment has been difficult for gold prices, however, despite a positive seasonality backdrop.

• On Tuesday, July 12, gold in EUR-terms (XAU/EUR) will be in focus when the German and Eurozone ZEW economic sentiment indexes for July are released at 9 GMT.
• On Wednesday, July 13, the final June German inflation rate report will be released at 6 GMT, as will gold in GBP-terms (XAU/GBP) with the May UK GDP report. At 12:30 GMT, the June US inflation rate report will be published will bring attention to gold in USD-terms (XAU/USD, GC). The Bank of Canada’s June rate decision will be announced at 14 GMT, impacting gold in CAD-terms (XAU/CAD).
• On Thursday, July 14, gold in AUD-terms (XAU/AUD) is in focus with the June Australian jobs report (employment change and unemployment rate) due at 1:30 GMT. The June US producer price index will be released at 12:30 GMT.
• On Friday, July 15, 2Q’22 Chinese GDP report will be published at 2 GMT, impacting gold in CNH-terms (XAU/CNH). The June US retail sales report is due at 12:30 GMT. At 14 GMT, the preliminary July US Michigan consumer sentiment reading will be released.

GOLD PRICE VERSUS COT NET NON-COMMERCIAL POSITIONING: DAILY TIMEFRAME (July 2020 to July 2022) (CHART 1)

Next, a look at positioning in the futures market. According to the CFTC’s COT data, for the week ended July 5, speculators decreased their net-long gold futures positions to 146,416 contracts, down from the 165,090 net-long contracts held in the week prior. The futures market is now the least net-long since May 2019.

IG CLIENT SENTIMENT INDEX: GOLD PRICE FORECAST (July 8, 2022) (CHART 2)

Gold: Retail trader data shows 87.01% of traders are net-long with the ratio of traders long to short at 6.70 to 1. The number of traders net-long is 3.60% lower than yesterday and 5.12% higher from last week, while the number of traders net-short is 6.30% lower than yesterday and 13.28% 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.

— Written by Christopher Vecchio, CFA, Senior Strategist