Gold Price Prediction – Prices Attempt to Break Out but Ease Into the Close

Gold prices attempted to break out and where strongest at the US equity markets open as the Dow tumbled nearly 500 points. As equities recovered through the trading session the risk off theme slumped allowing gold prices to edge back from the highs of the session.  The dollar was mixed as yields where unable to break out. Hedge funds likely continued to cover their short position in futures and options which was reported by the CFTC on their commitment of trader’s report which was released last Friday.

Technical analysis

Gold prices attempted to break out from its bull flag pattern but was met with selling and prices where unable to surge higher. 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. The fast stochastic is printing a reading of 83, above the overbought trigger level of 80 which could foreshadow a correction. The fast stochastic is also moving sideways which reflects consolidation.

Hedge Funds Exit Short Positions Pushing Prices Higher

The most recent commitment of traders report released by the Commodity Futures Trading Commision, 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.