CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81.40% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Scan to Download iOS&Android APP

Gold (XAU/USD) analysis: Long positions surge as Fed struggles to tame inflation; $1,900 in sight?


Updated

Share this article
In this article:
  • Gold
    Gold
    1661.44 USD
    0.2 +0.010%

What You Need to Know

The week ahead update on major market events in your inbox every week. Subscribe
gold lingots and bull
A bull on gold bars, indicating an upward trend in precious metal prices – Photo: Shutterstock

Gold has risen nearly 7% since its July 21 low of $1,680 per troy ounce (oz.), snapping a three-week winning streak as market sentiment shifted to safe-haven assets amid rising global growth concerns and persistent inflationary pressures.

Gold's net speculative positions have recently improved from extreme low levels seen in July. Historically, rising traders' long positioning has been a good indicator of a gold price uptrend.

The Fed and other central banks continue to struggle to contain inflation. In July, another US CPI print above 8% is expected. The BoE has already acknowledged that inflation will persist. Raising the target for inflation to 3% would be more in line with the inflation trend in the coming years and would exert upward pressure on gold.

According to the technical analysis, gold prices have recently hit $1,800, breaking both the descending channel from 2022's high and the 50-day moving average. The key resistance levels to watch for are now $1,828 (38.2% Fibonacci of 2022 highs/lows) and $1,875 (50% Fibonacci). A break there would likely open the door to a test of the psychological resistance level of $1,900.

What is your sentiment on Gold?

1661.44
Bullish
or
Bearish
Vote to see Traders sentiment!

Gold spot live chart: prices hit $1,800/oz mark

Gold CFTC positioning: Traders added net longs

A chart showing gold price and CFTC net speculative positionsGold price and CFTC net speculative positions – Photo: Capital.com, Source: Tradingview

According to the latest Commodity Futures Trading Commission (CFTC) weekly Commitments of Traders (COT) report, gold net speculative positions increased by 34% to 124.3K contracts on the week ending August 2, up from 92.7K the previous week.

This marks the largest weekly increase in gold net speculative positions this year. Speculators' positioning on gold has consistently declined from a peak of 274.4K in the first week of March to 92.7K at the end of July, the lowest level since May 2019.

Despite this increase, gold net long positions remain relatively clean compared to their one-year average, implying that a further increase in sentiment toward gold could lead to significant price upside.

Gold macro outlook: stagflation is here to stay

a chart showing consumer confidece in US, EA, UK

Consumer confidence index: US, EA and UK

a chart showing inflation expectations in US, EA, UK

Inflation expectations (UK and US)

a chart showing inflation rates in the Euro Area

Inflation rates in the Euro Area

gold bull market

Gold 1970s bull market

a chart showing consumer confidece in US, EA, UK

Consumer confidence index: US, EA and UK

a chart showing inflation expectations in US, EA, UK

Inflation expectations (UK and US)

a chart showing inflation rates in the Euro Area

Inflation rates in the Euro Area

gold bull market

Gold 1970s bull market

1/4

The United States entered a technical recession in the first quarter of the year, but the labour market remains exceptionally robust.

The US economy added 528,000 nonfarm payrolls in July, more than double what economists predicted, and wage growth continued to overshoot, with a 5.2% annual surge in hourly earnings (vs 4.9% expected).

The Fed now faces the hard task of abruptly and rapidly cooling an extremely hot labour market in order to prevent further wage pressures from translating into higher consumer inflation.

However, clouds of a severe downturn are gathering in Europe, as consumer confidence has plummeted to pre-recession levels in the midst of the gas energy crisis and skyrocketing inflation rates. The fourth quarter of this year will see the United Kingdom enter a prolonged recession, according to the Bank of England, which also warned of the possibility of a lengthy period of price inflation.

A weaker economic outlook and persistently high inflation create the conditions for a prolonged phase of stagflation, a regime where gold has traditionally done well, especially in the 1970s.

The link between gold and inflation is strong and growing

a chart showing the correlation between gold and inflation expectationsCorrelation between gold and US market-based inflation expectations (10-year Breakeven rate) – Photo: Capital.com, Source: Tradingview

The correlation between gold and inflation expectations (10-year US breakeven rates) has been extremely strong this year, and is currently equal to 0.89 for the 90-day rolling timeframe.

The market currently anticipates that inflation in the United States will average approximately 2.5% over the next decade, which is certainly higher than its 10-year average (1.97%) and the Fed's 2% target.

Oil - Crude

79.31 Price
-2.390% 1D Chg, %
Long position overnight fee 0.0226%
Short position overnight fee -0.0420%
Overnight fee time 21:00 (UTC)
Spread 0.03

Natural Gas

6.94 Price
-0.580% 1D Chg, %
Long position overnight fee -0.1437%
Short position overnight fee 0.1041%
Overnight fee time 21:00 (UTC)
Spread 0.020

Oil - Brent

85.10 Price
-2.580% 1D Chg, %
Long position overnight fee 0.0461%
Short position overnight fee -0.0715%
Overnight fee time 21:00 (UTC)
Spread 0.04

Gold

1,661.44 Price
+0.010% 1D Chg, %
Long position overnight fee -0.0157%
Short position overnight fee 0.0056%
Overnight fee time 21:00 (UTC)
Spread 0.60

Gold is therefore seen as a hedge against inflation that stays above than the target for a long time.

If the US CPI continues to come in higher than anticipated and above 7-8% in the upcoming months, more doubts will be raised about whether this inflation can be controlled by raising interest rates alone. This could push inflation expectations higher, weigh on the dollar, and favour gold. 

The link between gold and interest rates is negative but fading

a chart showing the link between gold and interest ratesCorrelation between gold and US 2-year Treasury yields – Photo: Capital.com, Source: Tradingview

Looking at the relationship between gold and interest rates, expectations of future Fed interest rates hikes have been a drag on gold prices this year. Higher yields on U.S. Treasuries and a stronger dollar have a negative impact on the precious metal because they increase the opportunity cost of holding a non-yielding asset like gold.

The 90-day rolling correlation between gold prices and US 2-year yields - a proxy for the Fed's policy rate in the near future - is currently -0.72, indicating that gold and US interest rates remain negatively correlated.

However, unlike previous Fed rate repricing episodes in May and July, the one that occurred recently following the US job market report did not result in a significant drop in gold prices. Despite rising US two-year yields, gold prices actually rose.

Consequently, this could be an early sign that the negative relationship between gold and the Fed's expected interest rates is beginning to fade, as investors start to believe that raising interest rates alone will no longer enough to keep inflation under control.

Gold technical analysis: bulls target $1,900 

technical analysis on goldGold daily chart technical analysis as of August 9, 2022 – Photo: Capital.com, Source. Tradingview

On the daily chart of gold, prices have recently broken out of the descending channel that has been in place since the peak on March 8th, as well as the 50-day moving average (dma).

For the past two weeks, the 14-day RSI has been hovering above 50, rebounding nicely from severely oversold levels in July and indicating that bulls have gained the upper hand in short-term momentum. MACD is also rising, with the MACD line crossing the zero line for the first time since May. 

Gold's Fibonacci retracement analysis suggests that the next obstacles to monitor are $1,828 (38.2% Fibonacci retracement level of the high-low range for 2022) and $1,875 (50% Fibo level). Crossing this significant threshold would provide further confirmation of the trend reversal and would likely open the door to a test of the $1,900 psychological mark. 

On the downside, the immediate support is already at $1,771 (23.6% Fibo level). A breakdown there would put more pressure on the $1,735-1,750 price support.

 

Read more...

What You Need to Know

The week ahead update on major market events in your inbox every week. Subscribe
The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Still looking for a broker you can trust?

Join the 450.000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading