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Gold Forecast Bullish as Traders Remain Sceptical

ICE Markets

The commencement of July has been defined by the market’s reaction to the G20 Summit in Osaka Japan. Where most prominently the USA and China have agreed to resume trade talks in an attempt to resolve the end the trade war. However, fresh speculation over the Federal Reserve rate cut decision has emerged, prompting the question as to whether the US/ China trade war will provoke the FOMC into making emergency interest rate cuts in July.

The pullback from Gold has not come as a surprise as it has exhibited the same price fall that has occurred the last five times that Gold was in this position. Where prices were more than 2% over the daily average of 21-EMA, rendering Gold exhausted and overbought. Since last Tuesday’s high was established Gold’s value has plummeted by – 3%, demonstrating a more significant pullback than recently but still not a surprise at all.
It has been of the perception that Gold Volatility has been a big supporting factor in Gold’s recent price rally. Gold’s volatility expansion was deeply rooted within the US/ China trade war and the effect this has had on the FED interest rates. Over the last month the Gold Volatility expansion has risen from May 29th to the high on June 25th, demonstrating a 92.8% gain by GVZ. Gold prices rallied in this climate by an increase of 11.2% last month.

GVZ (Gold Volatility) Technical Analysis: Daily Price Chart
(October 2016 to July 2019)

Whilst other asset classes don’t see increased volatility as positive, precious metals such as Gold tend to benefit from periods of high volatility. This is due to the uncertainty increasing Gold’s ‘safe haven’ appeal to traders. However, during the recent pullback of Gold volatility many would have expected Gold’s value to subsequently fall, as recent similar occurrences have demonstrated this relationship. The last time GVZ was at 13.43 Gold prices were at 1350, highlighting Gold’s resilience during the recent GVZ pullback.

(JULY 2018 TO JULY 2019)

It was suggested last week that is Gold loses the daily 8-EMA then a deeper setback for Gold prices may occur. Yesterday Gold fell below the daily 8-EMA for the first time since May this year. Traders may wish to be patient here and see how the chart shapes up over the next few days before launching onto the next bullish swing. As Gold’s momentum may be shifting and a weakness in price action may be ahead. At the time of writing Gold was trading at a low of 1416.89.

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