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What happened to Gold during the Summer? Fundamental and Technical analysis

Published by Karl Martin Karus in category Articles on 03.10.2022
Gold price (XAU-SEK)
25354,10 SEK/oz
- 43,30 SEK
Silver price (XAG-SEK)
322,16 SEK/oz
- 2,14 SEK

Fundamental Analysis

U.S. Mint Gold Bullion Sales Increased in July

United States Mint bullion sales quickened in July for gold products but slowed for American Silver Eagles.

American Eagle gold bullion coins advanced 64,500 ounces in July, registering gains of 24% from 52,000 ounces in June and 10.3% from 58,500 ounces in July 2021. American Gold Eagle sales for the year at 806,000 ounces are 13.3% higher than the 711,500 ounces sold during the same period last year.

Perth Mint sees new demand for Gold Bullion

Meanwhile, on the other side of the globe, the Perth Mint said it sold 79,305 ounces of gold in July, an increase of 21% from July. At the same time sales are up 12% from last year.

The Perth Mint also said it sold 2.47 million ounces of silver last month, up 62% from June and 89% from July 2021.

“We continued to experience extremely strong demand for physical silver,” said Neil Vance, general manager of minted products at the Perth Mint. “Even with a strong month for output, silver coins remain subject to allocation.”

Fear Over Slowdown and Gold Extended Decline

Bullion has dropped again after increasing for four weeks as the U.S. dollar continues to strengthen. The newest U.S. statistics showed swiftly cooling manufacturing and falling homebuilder optimism, adding to fears about global economic risks following China’s poor numbers.

China’s weakness caused the country’s central bank to issue an unexpected rate cut, just as the Federal Reserve tightened policy to battle inflation. This increased the attraction of the U.S. dollar while diminishing the allure of gold.

(Picture 1. Gold holds decline amid signs of Slowdown – Bloomberg)

What do experts think of the current situation?

Philip Newman, managing director of Metals Focus, said that demand for gold and silver bullion picked up in July as the sharp drop in prices provided investors with bargain hunting opportunities.
Although sales in the last two months have been much lower than in the previous two, Newman stated that physical demand is on track to equal last year’s robust demand.

“Everything mints are producing is being sold,” he said.

“We expect to continue to see robust demand for bars and coins in 2022.”

According to Bart Kitner, president of Kitco Metals Inc, the demand increased in July, it is too early to tell if there is a new trend in the market. However, he expects physical demand to climb as fears of a recession grow.

“Physical precious metals will become more attractive, assuming that the recession causes the individual to have less confidence in the economy, the U.S. dollar, and the integrity of the financial system.”

Technical indicator analysis

Trendlines / Support & Resistance

*Red lines are a downtrend. The heavy red line is the long-term trendline.
Green lines are uptrend. The heavy green line is a long-term trendline.
Blue lines are short-term support & resistance lines

(Picture 2. Trendlines & Support/Resistance)

  • Gold price started strongly in 2022 when in 6 weeks, it gained more than 200 USD in value per ounce.
  • At the beginning of the second week in March, the gold price started to lose value fast and has been dropping, with minor bullish corrections.
  • From the middle of May til the middle of June, gold prices moved sideways with little action.
  • From the middle of June, gold prices started to drop again quite fast and had lost more than 150 USD in value in a month.
  • From July to August, gold showed its teeth and gained just over 100 USD in value, reaching 1800 USD levels in a month, which was a bullish correction in a strong downtrend.
  • Since then, the gold price has been losing its value again and is currently trading near 1660 USD.
  • Gold is showing bullish momentum as the descending triangle makes its final formation. Both a bullish breakout and a bearish continuation are a possibility in September.

Moving Averages, and RSI

(Picture 3. –moving averages and RSI)

  • In Picture 2, the graph shows that the price broke the 250MA line at the end of June, finishing the sideways movement and continuing a further strong downtrend.
  • Since then, gold has moved further away from the 250MA, indicating a strong weakened price.
  • The more the price moves away from 250MA, it’s bound to make a bullish correction back to the 250MA area to test the bullish momentum in the markets.
  • RSI divergence also concludes that gold price is potentially going to make a bullish correction because of mid-term and short-term double divergence
  • Gold must break out from the bearish trendline and short-term resistance near 1700 USD to make further bullish movements to the 1760 USD range.

In conclusion, during the summer, gold has been highly bearish and lost over 330 USD/per ounce value from its 2022 peak price. In the middle of September, indicators are suggesting a potential turnaround for market bulls. We can expect to see correctional movements in the 1660-1700 USD area before a breakout can potentially happen.
It is worth mentioning that indications can also be wrong, and gold can make further bearish movements, but the probability suggests otherwise.

Gold price (XAU-SEK)
25354,10 SEK/oz
- 43,30 SEK
Silver price (XAG-SEK)
322,16 SEK/oz
- 2,14 SEK

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