Gold Price Forecast Overview:
- Good news for gold prices as Democrats’ wins in the Georgia Senate Runoff Elections increases the odds of more fiscal stimulus. US real yields have dropped, even as US Treasury yields have climbed higher.
- Gold prices have cleared the 38.2% Fibonacci retracements of the 2020 low/high range at1928.05, as well as the downtrend from the August and November 2020 highs.
- According to theIG Client Sentiment Index, gold prices may soon trade higher.
Gold Prices Teeter, but Good News Abound
Gold prices are trading weaker on the day in the wake of the surprising US Georgia Senate Runoff Elections, which yielded Democrats two wins and an effective majority in the Senate. Democrats now control the House, the Senate (vis-à-vis a tiebreaker from Vice President-elect Kamala Harris), and the White House. In a sense, gold prices are no longer a loser from the US presidential election, now that the composition of the Senate is known.
Long-term, this is good news for gold prices as Democrats’ wins in the Georgia Senate Runoff Elections increases the odds of more fiscal stimulus, which will push up the federal deficit and debt. US real yields have dropped, even as US Treasury yields have climbed higher, reflecting a rise in inflation expectations. With the Federal Reserve keeping interest rates low through 2023, the fundamental backdrop for gold just become a lot sturdier overnight.
Gold Prices and Gold Volatility Back in Sync
Historically, gold prices have a relationship with volatility unlike other asset classes. While other asset classes like bonds and stocks don’t like increased volatility – signaling greater uncertainty around cash flows, dividends, coupon payments, etc. – gold tends to benefit during periods of higher volatility.
Gold volatility has started to rise in recent days as trading volume has returned to the markets following the holidays, running right into significant event risk in the form of the US Georgia Senate Runoff Elections. Gold volatility (as measured by the Cboe’s gold volatility ETF, GVZ, which tracks the 1-month implied volatility of gold as derived from the GLD option chain) is trading at 22.14. The 5-day correlation between GVZ and gold prices is +0.98 while the 20-day correlation is +0.77; one week ago, on December 30, the 5-day correlation was +0.39 and the 20-day correlation was +0.23.
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GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (October 2008 to January 2021) (Chart 1)
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