Gold Technicals – Seeking 1,400 with yet higher Net Long Positions

Recent “risk off” sentiments helped to chase the yellow metal prices higher, sending Gold above 1,345, the highest in slightly less than 2 months. However, if we consider the recent gains in Net Long Positions from Non-Commercials via the latest COT data, it is clear that the main driver of current rally is not purely due to risk aversion, but due to high speculation by big institutions in recent weeks. Latest figures put speculative net long positions at 53,926 contracts, 2,300 contracts higher than the previous week. This is not a spectacular increase, but at least account for the 20 USD thereabout difference between 6th and 13th August snapshots, suggesting that the rally at least between the 2 dates is supported by proper demand purchases. Hence it is not a huge stretch to assume that the rally seen last Thursday is of the same breed, which bodes well for further bullish advances as we push towards the 1,400 mark. Certainly, the proliferation of US stocks recently is not hurting Gold, and the demand from mass market panic may be just the thing the rest of the institutional funds need to counter the losses suffered from big names ( Paulson & Co, Soros etc) selling in recent months.

Hourly Chart

From a technical perspective, price is trading into a narrowing wedge, closing in on the apex which is formed around US opening session. Stochastic readings are pointing higher, but with readings already within Overbought region, we may see a pullback eventually, potentially finding it during US opening session should a wedge breakout happen then. Looking at price action alone, price rallied unexpectedly a few hours later during early Asian hours. Some may say that the rally could be due to the overall bullish reaction in the market, but that reasoning falls flat when we consider that prices didn’t move much during the first 2-3 hours of today’s open, as we would expect from traders seeking to participate n the confirmed breakout of 1,370 intraday resistance.

Hence, institutional speculative purchases continue to be a better explanation for the rally, and therefore we should see even higher COT net long numbers at the end of the week. Failure to see increases in Net Long positions would suggest that institutional purchases may have stopped, and a turn around in price may be likely moving forward.

Weekly Chart

From weekly chart technicals, we can see price heading towards the 1,400 resistance which is the confluence with descending Channel bottom. Judging by Stochastic readings which are still pushing higher, the odds of hitting 1,400 and the potential of breaking within the descending channel is there. However, pushing towards 1,530 which is the key level to invalidate current downtrend may be too tall an order for current rally. Looking at the consolidation back in May, it is possible that price may find it hard to break the consolidation ceiling especially if it happens to be the confluence with the descending Channel Top should current rally continues into September and October. Therefore, the outlook for long-term gold prices is still lower, and traders should be careful of any sharp bearish pullbacks as large bears may be lying in wait for good prices to sell into moving forward.

More Links:
GBP/USD – Maintains the Two Month High above 1.56
AUD/USD – Settles just under Resistance at 0.92
EUR/USD – Eases away from Resistance at 1.34

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