Gold Price (XAU/USD), Chart, and Analysis
The war in Ukraine continues to roil a range of risk markets with European equities currently the sector hit hardest. The DAX 40 has touched a fresh 15-month low while the CAC 30 has just printed a new 10-month nadir. US indices remain under pressure but their losses are not as severe as those seen in Europe. The war in Ukraine, which seems to escalate on a daily basis, is the known driver behind the sharp de-risking move and until a peace agreement or cessation of military action is announced, risk markets will remain under pressure in the weeks ahead.
DAX &FTSE Plummet as Outlook for European Equities Deteriorates
Against this backdrop, traditional risk-off asset classes continue to shine with gold, the Swiss Franc, and the Japanese Yen in constant demand. The turnaround in gold since the end of January has created a strong trend on the daily chart and this constant move higher is likely to continue. Today’s US Jobs Report (NFP), normally a release with the potential to spark a strong market reaction, is unlikely to break gold’s move higher over the medium-term. The labor market and inflation are the Federal Reserves’ top priorities when deciding monetary policy and the ongoing strength in the US labor market have given the Fed the ability to focus on the fight to tackle sky-high inflation. After months of signaling from the central bank that they would tighten monetary conditions, the Federal Reserve in recent days has started to make clear their plans to hike interest rates with a minimum of 25bps baked in for the March meeting and another 3 to 4 hikes expected this year.
Gold normally reacts negatively in a rate hiking environment but these rate increases have been priced into the precious metal’s outlook already, with risk-aversion currently seen as more important than a tighter monetary policy environment by the market. Another strong jobs report may nudge gold lower in the very short-term but is unlikely to alter its path higher while risk aversion remains at its current, heightened, levels.
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With risk continuing to provide a strong tailwind, gold may look to re-test last Thursday’s spike-high at $1,974/oz. shortly. Above here, $2,000/oz. and the August 18, 2020 high of $2,015/oz. come back into play. The ATR volatility indicator is at a multi-month high and traders should be aware of the potential for sharp price moves before deciding to enter the market.
Gold Daily Price Chart – March 4, 2022
Retail trader data show 71.69% of traders are net-long with the ratio of traders long to short at 2.53 to 1. The number of traders net-long is 1.72% higher than yesterday and 0.93% higher from last week, while the number of traders net-short is 2.46% higher than yesterday and 17.10% 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.
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