Gold Price Forecast: All-Time Highs in Sight

Gold Price Forecast: All-Time Highs in Sight

Gold Price Outlook:

  • Gold prices are back above 1900 – but a return back to all-time highs requires greater escalation between Russia and the West.
  • It remains the case that more upside is possible as the Russia-Ukraine crisis unfolds, but its likely that the 2022 high has been established.
  • According to the IG Client Sentiment Index, gold prices retain a bearish bias in the near-term.

Gold Regains Shine

One of the knock-on effects of the Russian invasion of Ukraine and ensuing sanctions by the European Union and the United States has been a dramatic surge in commodity prices, particularly agriculture, energy, and base metals. Demand for safe havens has been boosted as well, with government bond yields plummeting in recent weeks.

The net-result? Rapidly rising inflation expectations, leading to a plunge in real yields. Now that real yields are dropping in the context of a risk-off environment in financial markets, gold prices have renewed appeal.

So it’s not just gold prices finding a bid in as a safe haven – though that’s a big contributor. Last week it was noted that “it’s World War 3 or bust, if gold prices are going to have any chance at a return to their highs set last week,” and for all intents and purposes, we seem to have embarked down that path: Russia has called the sanctions a “declaration of war”; and NATO involvement appears to be escalating with news that Poland may send old Soviet-era fighter jets to Ukraine as long as the US resupplies Poland with American-made fighter jets.

It’s been previously commented that “further upside is still possible, but it stands to reason that gold prices have already carved out their apex.” Further upside has been realized, but the apex in gold prices in late-February has been overtaken. Gold prices are now at their highest level since August 2020, and with the Russian invasion of Ukraine ongoing, the base case scenario is that a move to and through all-time highs is around the corner.

Gold Volatility Surge Underpins Rising Gold Prices

Historically, gold prices have a relationship with volatility unlike other asset classes. While other asset classes like bonds and stocks don’t like increased volatility signaling greater uncertainty around cash flows, dividends, coupon payments, tends to benefit during periods of higher volatility. As war continues to rage in Eastern Europe, gold volatility has remained elevated, supporting the surge in gold prices.

GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (March 2021 to March 2022) (Chart 1)

Gold volatility (as measured by the Cboe’s gold volatility ETF, GVZ, which tracks the 1-month implied volatility of gold as derived from the GLD option chain) was trading at 32.36 at the time this report was written, now the highest level since April 2020. The 5-day correlation between GVZ and gold prices is +0.97 while the 20-day correlation is +0.93. One week ago, on March 1, the 5-day correlation was +0.50 and the 20-day correlation was +0.82.

Gold Price Rate Technical Analysis: Daily Chart (June 2020 to March 2022) (Chart 2)

Gold Price Forecast: All-Time Highs in Sight - Levels for XAU/USD

Last week it was noted that “another push higher is still possible in the near-term, with gold prices above their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bullish sequential order.” Bullish technical momentum remains strong, with gold prices holding above their daily EMA envelope. Daily MACD continues to push higher, and daily Slow Stochastics are holding in overbought territory. Barring a ceasefire or reversal of sanctions – neither of which seem likely – gold prices are poised to overcome their all-time high set in August 2020 at 2075.28. Once cleared, we’re in unchartered territory; using the daily 5-EMA as a potential guide as support may be prudent.

Gold Price Technical Analysis: Weekly Chart (October 2015 to March 2022) (Chart 3)

Gold Price Forecast: All-Time Highs in Sight - Levels for XAU/USD

If there has been a silver lining to recent gold commentary, it’s been the observations made around the weekly timeframe. To this end, our commentary remains valid: “Nothing has changed over the past few days for the longer-term technical outlook. The longer-term technical outlook has taken on a more bullish tone, suggesting that another push higher towards 1974.49 can’t be ruled out in the near-term. Gold prices are above their weekly 4-, 13-, and 26-EMA envelope, which is in bullish sequential order. Weekly MACD is trending higher while above its signal line, and weekly Slow Stochastics have advanced into overbought territory.”


Gold Price Forecast: All-Time Highs in Sight - Levels for XAU/USD

Gold: Retail trader data shows 67.82% of traders are net-long with the ratio of traders long to short at 2.11 to 1. The number of traders net-long is 0.64% lower than yesterday and 9.66% lower from last week, while the number of traders net-short is 7.51% higher than yesterday and 11.08% higher 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.

Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Gold price trend may soon reverse higher despite the fact traders remain net-long.

— Written by Christopher Vecchio, CFA, Senior Strategist

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By: Christopher Vecchio, CFA

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