Gold - The weak stock market threatens gold's prosperity

Over the past several months, we repeated our concern about gold drifting lower with the stock market. Today, we continue to stick to this narrative and remain bearish on XAUUSD in the short term. However, we are also starting to grow increasingly bearish in the medium-term while staying resonantly bullish in the long-term. Indeed, we think the looming weakness in gold (and also the current one) will provide another excellent opportunity for investors to add gold to their portfolios.

Because of that, we will pay close attention to the FED meeting between the 20th and 21st of September 2022. The central bank is expected to raise interest rates between 50 bps to 75 bps, which will inherently strengthen the U.S. dollar and weaken all other assets weighted in it. The rate hike will also pressure the U.S. economy, leading to risk aversion and a sell-off of assets. As on previous such occasions, we think this time will be no different, and gold will experience weakness as investors will cover losses elsewhere.

As for the technical factors, the daily time frame improved slightly over the past few days, with volume declining. Although weekly and monthly time frames remain bearish. Due to that, we are very cautious and looking for 1 600 USD in the case of a stock market sell-off.

Illustration 1.01
Illustration 1.01 shows the daily chart of XAUUSD and two simple moving averages. Yellow arrows indicate several technical developments.

Technical analysis - daily time frame
RSI is slightly bullish. MACD is flattening, and Stochastic points to the upside. DM+ and DM- stay bearish. Volume has declined after the period of selling, which is bullish. Overall, the daily time frame has improved over the past few days and turned slightly bullish.

Illustration 1.02
Illustration 1.02 shows a strong positive correlation between the Nasdaq 100 continuous futures and gold; however, a little delay between the two can be observed. Gold is down approximately 19% from its recent peak, while Nasdaq futures are down approximately 27%.

Technical analysis - weekly time frame
RSI, MACD, Stochastic, DM+, and DM- are all bearish. Overall, the weekly time frame is bearish.
Illustration 1.03
The picture above shows the current setup on XAUUSD.


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DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.