Stacks of gold bars

Gold is Not Exactly Glittering

By:Christopher Vecchio - CFA

Gold prices down -3.01% month-to-date. What lies ahead?

  • August has been a bad month for gold and silver, bucking seasonal trends.
  • Gold prices are down by 3.01% in August, while silver prices have lost 8.98% this month.
  • Technical indicators now suggest that price momentum is deteriorating, suggesting further losses in the immediate future.

Fig. 1: Year-to-date price percent change chart for /GC, /SI

After staging an impressive run higher through the first few weeks of July, the turn into August has been anything but friendly for gold and silver prices. The breakdown in U.S. Treasury bonds outpaced a jump in U.S. inflation expectations, pushing up U.S. real yields to multi-month highs in the process; gold and silver tend to underperform during environments defined by rising real yields. 

Even though the prospect of higher inflation the next few months persists—starting with the July U.S. consumer price index released today—it may be the case that gold and silver prices are facing headwinds in the near-term. From a technical point of view, weakness may just be beginning.

/GC gold price technical analysis: daily chart (August 2022 to August 2023)

In late-July, it appeared gold prices were getting ready to break out of an ascending triangle to push above $2,000. But the burst higher in U.S. Treasury yields upended the best laid plans of mice and men (or gold bugs and men?), kneecapping the rally. Instead, ascending triangle support has been breached, indicating that the recent uptrend off the summer lows has been broken. 

Undergirding the near-term bearish interpretation has been a shift in the momentum profile as well. Moving average convergence/divergence (MACD) is trending lower and nearing a cross below its signal line, while slow stochastics are nearing a move into oversold territory. Necessarily, from a technical point of view, this opens the prospect of a return to $1,900 in the coming weeks. 

/SI silver price technical analysis: daily chart (August 2022 to August 2023)

Silver prices dramatically underperformed gold in recent weeks, by about three to one (not a surprise; silver prices are seen as a high beta gold). The uptrend from the March and June swing lows has been broken, bringing back into focus the rising trendline from the September 2022 and March 2023 lows. Momentum is deteriorating rapidly, with MACD trending lower through its signal line while slow stochastics have returned to oversold territory. The June swing low comes into focus near 22.140—which coincides with the aforementioned uptrend before August is over.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

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