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Gold Price Outlook Turns to UofM Sentiment as US Dollar, Treasury Yields Rally

Gold, XAU/USD, US Retail Sales, University of Michigan Sentiment, IGCS, Technical Analysis – Talking Points:

  • Gold prices extended losses after US retail sales beat expectations
  • Rosy University of Michigan Sentiment data could extend its losses
  • Bearish Rising Wedge breakout continues to unfold, eyes on SMAs

Anti-fiat gold prices weakened during Thursday’s North American trading session, extending the near-term downtrend since the beginning of this month. XAU/USD was likely pressured by a combination of a stronger US Dollar and rising longer-term Treasury yields. The 10-year rate closed at its highest since the beginning of this week.

Stronger-than-expected US retail sales data was likely the key culprit, rising 0.7% m/m in August versus -0.7% anticipated. Excluding automotive and gas sales, transactions increased 2.0% versus 0.0% anticipated. The data likely continued fueling the Fed tapering timeline debate after mixed US jobs and CPI data. This comes ahead of next week’s FOMC monetary policy announcement.

Over the remaining 24 hours, gold traders ought to keep an eye out for University of Michigan Sentiment data. Preliminary estimates for September point to a 72.0 outcome, which would be higher than the 70.3 result in August. Another rosy print could further push of bond yields and the US Dollar, placing the yellow metal at risk. Likewise, a softer result may offer some cushion to XAU/USD.

Check out the DailyFX Economic Calendar for more key events!

Gold Technical Analysis

Gold continues to trade lower in the aftermath of breaking under a bearish Rising Wedge chart formation. On the 4-hour chart below, the 50-period Simple Moving Average crossed under the 100 equivalent. That created a bearish ‘Death Cross’, underscoring the technical bias to the downside. Key support seems to be 1740, which is the August 12th low. In the event of a turn higher, the 1769 inflection point may act as resistance.

XAU/USD Daily Chart

Gold Price Outlook Turns to UofM Sentiment as US Dollar, Treasury Yields Rally

Chart Created Using TradingView

Gold Sentiment Analysis

According to IG Client Sentiment (IGCS), about 85% of retail investors are net-long gold. Upside exposure increased by 16.25% and 13.77% over a daily and weekly basis respectively. We typically take a contrarian view to crowd sentiment. Since most traders are net-long, it suggests prices may continue falling. Recent changes in positioning are further underscoring a bearish contrarian trading bias.

Gold Price Outlook Turns to UofM Sentiment as US Dollar, Treasury Yields Rally

*IGCS chart used from September 17th report

— Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter