Gold price analysis for June: yellow metal to be volatile next month
Momentum is positive which points to accelerating price movements
Gold prices have edged higher in May and are poised to test target resistance heading into June. The price has been waiting for a breakdown in US yields, but both the US two-year and the US 10-year yields have consolidated in a sideways range. Market participants are waiting for stronger than expected economic data, but growth and unemployment are likely to remain subdued for the foreseeable future.
The Fed minutes were released which showed that the central bank took no action at the April meeting but stressed that it stands ready to do more as needed. The next FOMC meeting is scheduled for June 10, but the Fed has already shown that it does not need a meeting to take action.
There is little seasonal actively in June for gold prices, as the average performance ihas been flat 50 per cent of the time over the past 10 years. Gold implied volatility remains at elevated levels and historically gold volatility has increased seasonally in June.
Gold volatility remains elevated
Gold implied volatility surged in March rallying to 55 per cent, the highest seen since 2009. The crash in March in riskier assets took gold volatility higher but it has crashed back to earth and is now trading close to 21 per cent. This level is still approximately 13 per cent higher than the 50-week moving average of gold implied volatility which is at 17 per cent.
Gold implied volatility can be measured by using the Chicago Board of Options Exchange gold implied volatility index GVZ. This measures the “at the money” strike prices of gold options. This elevated level of implied gold volatility still projects a 1.3 per cent move per day for gold prices.
Additionally, gold volatility is generally higher in June. During the past 10 years, the average increase is 8.5 per cent. The GVZ is higher approximately 50 per cent of the time which likely means there are some years where gold volatility surges in June which means it is likely to be a choppy month.
Gold price technical analysis
Gold prices are pushing higher, edging into new territory after hitting a seven and a half-year high in May. The trend is upward sloping as both the 10-week moving average and the 50-week moving average are moving higher simultaneously. Support is seen near the 10-week moving average at $1,673, while resistance is seen near the October 2012 highs at $1,795.
Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. The current reading for the weekly fast stochastic is 92, above the overbought trigger level of 80, which could foreshadow a correction. Medium-term momentum is also positive as the MACD (moving average convergence divergence) histogram is printing in the black with an upward sloping trajectory which points to higher gold prices.
Gold price trend analysis: the bottom line
Gold is likely to be volatile in June. Seasonally implied volatility rises during the month. The technicals are positive and as prices push higher, they are likely to rally to target resistance near $1,795 which is a 3 per cent gain. Momentum is positive which points to accelerating price movements as they clear the current resistance level.
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