Weekly Fundamental Gold Price Forecast: Neutral

• Gold prices’ recent slump comes ahead of an expected slowdown in both fiscal and monetary stimulus out of the United States, as pandemic-era unemployment benefits have ended and the Federal Reserve’s taper announcement seems close by.
• Upcoming inflation data offers a mixed bag for gold prices: US inflation is expected to slow further while price pressures in Canada, the Eurozone, and the UK are expected to rise further.
• The IG Client Sentiment Index suggests that gold prices in USD-terms (XAU/USD) have a bearish trading bias.

Gold Prices: Week in Review

The rebound in the US dollar (via the DXY Index) after the disappointing August US NFP report helped take some shine off of gold prices over the past week. And with an expected slowdown in both fiscal and monetary stimulus in the United States, as pandemic-era unemployment benefits have ended and the Federal Reserve’s taper announcement seems close by, the once-promising fundamental backdrop for gold prices appears to be in the rearview mirror.

It may be the case that gold prices benefit if the US debt ceiling debate ends poorly (similar to 2011), but beyond that, there appear to be few positive catalysts over the next few months.

Gold’s losses during the first full week of September were not just US dollar-centric, however. While gold in USD-terms (XAU/USD) fell by -2.27%, weakness was widespread. Gold in EUR-terms (XAU/EUR) dropped by -1.56%; gold in GBP-terms (XAU/GBP) contracted -1.94%; and gold in JPY-terms (XAU/JPY) fell by -1.96%.

Economic Calendar for the Week Ahead

The second week of September, moving further away from multiple federal and religious holidays that sapped trading volumes, sees another saturated economic calendar. Indeed, several inflation reports due out over the coming days could provide some relief for gold prices, if only in the very near-term.

• On Tuesday, gold in GBP-terms (XAU/GBP) is in the spotlight with the release of the July UK employment report, while gold in USD-terms (XAU/USD) may prove volatile before the US cash equity open when the August US inflation report (CPI) is due.
• On Wednesday, gold in GBP-terms (XAU/GBP) is once again in focus with the release of the August UK inflation report (CPI). Later in the session, gold in CAD-terms (XAU/CAD) will draw attention around the August Canada inflation report (CPI). Finally, gold in NZD-terms (XAU/NZD) will deal with the release of the 2Q’21 New Zealand GDP report.
• On Thursday, gold in AUD-terms (XAU/AUD) is in the spotlight for the first time during the week with the release of the August Australia employment report. Ahead of the US cash equity open, gold in USD-terms (XAU/USD) is back in focus when August US retail sales data are due.
• On Friday, gold in EUR-terms (XAU/EUR) takes a turn as the primary gold-cross, when the final August Eurozone inflation report (HICP) is released.

Gold Price vs. COT Net Non-Commercial Positioning: Daily Timeframe (September 2020 to September 2021) (Chart 1)

Next, a look at positioning in the futures market. According to the CFTC’s COT data, for the week ended Sept. 7, speculators increased their net-long gold futures positions to 228,975 contracts, up from the 199,380 net-long contracts held in the week prior. The futures market is the most net-long since the week of June 14, 2021.

IG Client Sentiment Index: Gold Price Forecast (Sept. 10, 2021) (Chart 2)

Retail trader data shows 80.31% of traders are net-long with the ratio of traders long to short at 4.08 to 1. The number of traders net-long is 0.58% higher than yesterday and 5.07% higher from last week, while the number of traders net-short is 5.36% lower than yesterday and 33.93% lower 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.