Gold Price Prediction – Gold Consolidates and Hedge Funds Remain Short

After trading sideways for more than 2-months from mid-August to mid-October, many had hoped that the surge in gold prices on October 11, was the beginning of the breakout. While prices continue to form a bull flag pattern, which is a pause that refreshes, the sideways price action is draining. Yields in the US have stabilized with the 10-year near the 3.18 handle, which has levels the dollar creating a new trading range for gold. While the technicals still favor higher prices, neutral momentum could quickly send bulls for the exits. There were large scale exits from short position in futures and options during the week ending October 16, which lead to the rally on the 11^th.

Technicals

Gold prices continue to trade sideways forming a bull flag pattern. Prices have moved out of a prior range but are now consolidating those gains.  Support is seen near the 20-day moving average at 1,206. Resistance is seen near the July highs at 1,266. The 20-day moving average crosses above the 50-day moving average which shows that a medium term up trend is now in place. Momentum is neutral as the MACD (moving average convergence divergence) histogram prints in the black with a flattening trajectory which points to consolidation.

Hedge Funds Exit Short Positions

The most recent commitment of traders report released for the date ending October 16, 2018 showed that managed money exited short positions while adding to long position in futures and options. According to the CFTC hedge funds reduced short position by 45K contracts while increasing long position in futures and options by 20.6K contracts. Hedge funds who are short still outnumber hedge funds that are long by 37K contracts, 107K long to 144K short. A  second break out which would culminate if a bull flag pattern, will likely lead to an additional short covering in gold prices.