Price of Gold Fundamental Daily Forecast – Despite Recent Strength, Professionals Up Net Short Position

Gold futures are inching higher early Monday with the price action being influenced primarily by a stronger U.S. Dollar. There was no follow-through to the upside following Friday’s big rally, which represented the market’s best gain in over a year.

At 0846 GMT, December Comex Gold is trading $1210.70, down $2.60 or -0.21%.

Sellers aggressively covered short positions on Friday after Fed Chair Jerome Powell made dovish comments which merely highlighted the U.S. economic recovery, the strong job growth and tame inflation. Dollar bulls and gold bears were looking for something more hawkish.

According to Nicholas Frappel, general manager at Australia-based ABC Bullion, “Jerome Powell’s comments introduced some uncertainty into the market, with a stress on policy gradualism.”

Essentially, Powell’s comments suggested the Fed was moving closer to a neutral state and wouldn’t have to raise rates as aggressively in the future.

Forecast

Technical factors may be playing a role in today’s price action. The major July to August range is $1244.70 to $1167.10. Its 50% to 61.8% retracement zone is $1205.90 to $1215.10. The market is currently trading inside this range. This suggests a balanced market. Trader reaction to this zone will determine gold’s next move.

There is some debate as to whether the rally since August 16 is real buying or short-covering. Given the fresh data from the Commodity Futures Trading Commission, it looks as if the rally is being fueled at times by short-covering and weak buy stops.

Hedge funds and money managers increased their net short position in COMEX gold contracts to another record in the week to August 21, adding 1,306 contracts to bring it to 78,579 contracts, the largest since records became publicly available in 2006, data showed.

The CFTC data offers no evidence of new buying and the rapid spike to the upside on Friday suggests aggressive short-covering. Nonetheless, this doesn’t mean we’re going to see another steep sell-off, or another aggressive round of short-covering.

Although we can’t see it in the data because of the one-week lag, we can’t rule out that the number of short-positions decreased on the rally, then increased when the dollar strengthened early last week.

All we can really say is that gold bulls need an extremely weak dollar to help continue the rally.