Gold: Back Below 1,300 With Suspected Funds Selling

The threat of yesterday’s bullish channel breakout has been quashed, with price dipping back below 1,300 during early Asian trade. This move back lower affirms the relevance of current descending Channel, and opens up the potential for price to move lower towards Channel Bottom, below 1,200 and closer to 1,100 if bears are able to accelerate towards the bearish objective from here quickly (see weekly chart below). There are good fundamental reasons why that might be possible. It is no secret that funds purchases has been the main reason Gold was able to push up higher from 1,200+ a few months prior. Hence if we see strong bearish movements, we could see funds giving up their positions before more of their profits get eroded away. We are basically sitting on a keg of bearish gun powder waiting to go off.

Has the fuse been lit?
Judging by how gold prices suddenly fell below 1,300 without warning, and without any fundamental drivers suggest that the move has a high potential to be a speculative one, most likely instigated by a huge fund selling in order to send gold prices down with no reason whatsoever. Furthermore, considering that Asian markets is highly depressed right now with Nikkei 225 and Hang Seng Index trading deeply in the red. A risk aversion backdrop should support gold prices, which makes current sell-off all the more peculiar, and can only be adequately explained away if we consider that it is large offers that drove prices sharply lower.

Hourly Chart
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Technicals tell us that prices is under heavy bearish pressure. First off the bat, yesterday’s bullish breakout failed to break the sequence of lower highs and lower lows, suggesting that price is still within a broader downtrend. The highest price reached yesterday also failed to breach into the consolidation zone of last week, highlighting the weakness in the bullish endeavour. Currently we are looking at prices breaking below the incumbent Kumo, with Forward Kumo forming a bearish Kumo Twist. Furthermore, this morning’s slight corrective rebound failed to break into the Overhead Kumo, once again affirming that the bear trend is strong. Hence it would not be surprising to see funds with huge Gold positions getting jittery, resulting in current sell-off.

Keep a lookout for this Friday’s Commitment of Traders report, which will be a snapshot of today’s Net Non-Commercial Positions (data released on Friday is based on the Tuesday numbers). If we see further declines in Net long positions, and an increase in Open Interest, this would be a sign that Funds are indeed clearing out their positions and we could see a quick reversion back towards 1,200, with only the cost of mining the only reason left to support Gold prices moving forward. Hopefully Gold prices have not declined to such an extend that would render this Friday’s lagging information useless. For a less reliable (with regards to funds flow, but reliable in terms of retail flow) more updated read, traders may wish to use OANDA’s Open Position Ratios and Order Book to gauge any shift in sentiments.

Weekly Chart
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