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David Becker

Gold prices edged higher but traded in a very tight range on Tuesday as most of the market’s focus was on riskier assets. The dollar continued to rebound, but the movements in the greenback have been positively correlated with the greenback lately. Hedge funds continue to remain long futures and options according to the latest commitment of trader’s report released for the date ending April 28. US yields were nearly unchanged which kept gold prices rangebound. Gold implied volatility which is a component used to price gold options remained elevated and rose 3.5% back to 24%. In 2019, the average gold implied volatility was approximately 15%.

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Technical Analysis

Gold prices remained rangebound stuck between resistance near the 10-day moving average at 1,710 and support near the 20-day moving average at 1,701. Additional support is seen near the May lows at 1,670. The weekly chart of gold prices is forming a bull flag pattern which is a pause that refreshes higher. Gold will likely test the April highs near 1,747, but if it fails to break out, prices will form a triple top which is a bearish reversal pattern.

Short term momentum on gold prices has turned positive as the fast stochastic generated a crossover buy signal in the middle of the neutral range. This is likely a signal of further consolidation. Medium-term momentum is negative as the MACD (moving average convergence divergence) histogram is printing in the red with a downward sloping trajectory which points to lower prices.


Strong Debt Buoys Gold

The US is borrowing at the treasury level as well as at the consumer level. The New York Federal Reserve reported on Tuesday that household debt March totaled $14.3 trillion, a 1.1% increase from the previous quarter far surpassing the prior cyclical high of $12.7 trillion in the third quarter of 2008. Credit card balances fell $34 billion. Mortgage balances rose $156 billion to $9.71 trillion.

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