Gold Price Prediction – Prices Tumble as Momentum Turns Negative

Gold prices were hammered on Friday as a crowded trade lost many weak longs. Prices sliced through short term support levels, despite declining US yields but a steady dollar. Generally, gold prices are negatively correlated to the 10-year yield but the correlation has broken down as gold drop in tandem with US yields. US personal consumption expectations rose in January to an 11-month high.

Technical Analysis

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Gold prices were hammered on Friday, as trades quickly exited pushed the yellow metal down more than 4%. Volatility on gold prices surged higher but eased into the close. Why concerns over the spread of the coronavirus continue to weigh on riskier assets, gold has been immune and up until Friday used as a safe-haven asset. Prices sliced through support near the 10-day moving average which is now seen as resistance at 1,615. Prices bounced near the 50-day moving average at 1,569. Prices have also slipped through an upward sloping trend line that comes in near 1,571.

Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram also generated a crossover sell signal, crossing through the zero index level. The downward sloping trajectory of the MACD histogram points to accelerating negative momentum.

Inflation Rises

The Personal-consumption expenditures rose 0.2% in January from December, according to the Commerce Department. Personal income advanced 0.6% last month, the largest gain in 11 months. Expectations were for a  0.2% increase in spending and a 0.4% gain in personal income. Gains in income and spending came against the backdrop of still-modest inflation pressures. The price index for personal consumption expenditures, rose 0.1% on the month and was up 1.7% from a year earlier. Year-over-year price gains were 1.5% in December and 1.3% in November.