Weekly Fundamental Gold Price Forecast: Neutral

• Gold prices are facing difficulties in the coming days as more and more central banks take a hawkish turn.
• The last week of October may have served as a precursor for a much weaker environment to come for gold prices.
• The IG Client Sentiment Index suggests that gold prices in USD-terms (XAU/USD) have a bearish trading bias.

Gold Prices: Week in Review

Gold prices struggled mightily against all major currencies but the euro (gold in EUR-terms (XAU/EUR), +0.23%) and the British pound (gold in GBP-terms (XAU/GBP), 0%). Rapidly rising bond yields, particularly among the commodity currency sovereigns – Australia, Canada, and New Zealand – plagued precious metals.

Gold in AUD-terms (XAU/AUD) dropped by -1.27% on the week, the worst performing gold-cross, while gold in NZD-terms (XAU/NZD) fell by -0.67%, the second worst performing gold-cross. Even gold in USD-terms (XAU/USD) closed the week lower by -0.51%, thanks in part to the sharp end-of-month rally by the US dollar (via the DXY Index).

Economic Calendar for the Week Ahead

Coming into the first week of November where a trio of major central banks are expected to take a more hawkish turn – the Bank of England, the Federal Reserve, and the Reserve Bank of Australia – the last week of October may have served as a precursor for a much weaker environment to come for gold prices.

• On Monday, gold in USD-terms (XAU/USD) will be in the spotlight as the October US Markit Manufacturing PMI and October US ISM Manufacturing PMI will be released shortly after the US cash equity open.
• On Tuesday, gold in AUD-terms (XAU/AUD) will garner attention amid the November Reserve Bank of Australia rate decision, while gold in NZD-terms (XAU/NZD) will likewise be in focus around the release of the Q3'21 New Zealand labor market report.
• On Wednesday, gold in USD-terms (XAU/USD) is back at the forefront of gold-crosses thanks to the November Federal Reserve rate decisions.
• On Thursday, gold in GBP-terms (XAU/GBP) is in the spotlight when the Bank of England concludes its November rate decision, which will include the release of the Quarterly Inflation Report.
• On Friday, the week concludes with gold in CAD-terms (XAU/CAD) and gold in USD-terms (XAU/USD) in focus as the October Canada labor market report and October US NFP report are released ahead of the US cash equity open.

Gold Price versus COT Net Non-Commercial Positioning: Daily Time Frame (October 2020 to October 2021) (Chart 1)

Next, a look at positioning in the futures market. According to the CFTC’s COT data, for the week ended Oct. 26, speculators increased their net-long gold futures positions to 225,443 contracts, up from the 199,446 net-long contracts held in the week prior. The futures market is now the most net-long since the second week of June.

IG Client Sentiment Index: Gold Price Forecast (Oct. 29, 2021) (Chart 2)

Retail trader data for gold shows 78.48% of traders are net-long with the ratio of traders long to short at 3.65 to 1. The number of traders net-long is 10.17% higher than yesterday and 16.01% higher from last week, while the number of traders net-short is 3.83% lower than yesterday and 1.12% 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. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger gold-bearish contrarian trading bias.