Wednesday, October 1, 2014
Gold bulls continue to shed their net-long positions, with the most recent Commitment of Traders report showing that non-commercial traders (usually large speculators) shed nearly 12,000 net-long positions for the reporting period ending September 23. Even small speculators are staring to throw in the towel on long Gold positions as non-reportable traders liquidated nearly 3,400 net long positions.
The much maligned Gold market continues to struggle as a strengthening U.S. Dollar is keeping commodity price gains in check. Gold appears to have lost some of the "safe haven" asset buying by traders given its relatively poor price performance of late, despite increasing geopolitical turmoil in Ukraine, Iraq, and now Hong Kong, as pro-democracy protestors have taken to the streets in hopes of bringing free elections over the objections of Chinese state leaders. Traders are looking ahead to the potential of higher U.S. interest rates some time in 2015 as a catalyst to buy U.S. Dollars, which in turn makes commodities valued in U.S. Dollars more expensive to non-Dollar buyers. This is hurting demand for commodities in general and in particular for Gold prices as precious metals do not pay a return and actually cost money to hold. So holding Gold is less attractive in a rising interest rate environment. Gold bulls will note that the upcoming festival season in India usually brings about increased physical demand for Gold and with prices near 1 year lows, may spur additional buying. However, it may be difficult for Gold prices to stage any meaningful rally outside of some short-covering buying longs if the U.S. Dollar continues to strengthen.
Looking at the daily continuation chart for Gold futures, we notice prices trying to consolidate just above the 1200.00 price level. A fall below this psychological support level could spur a test of the 2013 lows near the 1180.00 price area, where in the past several months increased buying interest has been found. Below 1180.00 we see some chart support near 1150.00 with the next major support area not seen until 1000.00. The 14-day RSI has reached oversold levels, which may signal that a short covering rally may be near. Especially if weak longs rush to the exits should prices rise above the 20-day moving average (near 1236.00). 1181.40 is seen as the next support level for front month Gold futures, with resistance seen at 1236.10.
Mike Zarembski, Senior Commodity Analyst