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James Hyerczyk
Comex Gold
Comex Gold

Gold futures are trading lower early Monday in a limited trade. The market is inside Friday’s range which suggests investor indecision and impending volatility. The market is being underpinned by a weaker U.S. Dollar. Helping to weigh on the market are higher Treasury yields.

At 0847 GMT, December Comex gold is trading $1230.40, down $2.40 or -0.19%.

In other news, hedge funds and money managers increased their net short position in COMEX gold contracts to a record in the week to July 24, U.S. Commodity Futures Trading Commission (CFTC) data showed on Friday.

Investors added 5,001 contracts to their net short position, bringing it to 27,156 contracts, the biggest on record dating back to 2006, CFTC data showed.

Additionally, speculators raised bullish bets on the U.S. Dollar to the largest position since January 2017, according to calculations by Reuters and the CFTC.

Forecast

Today’s inside move and the more than week-long consolidation suggests that investors are playing the waiting game with the dollar, interest rates and the central banks.

We’re keeping an eye on the huge net short position because this could develop into a major counter-trend indicator. Gold hit its low for the year on July 19 at $1221.00 and subsequently rallied to $1244.70 on July 23. Since then, it has been rangebound with traders straddling its mid-point at $1232.90 for about 5 trading sessions since the CFTC data was compiled.

Is it possible that the trade into $1221.00 was exhaustion? Sure, but it’s not going to do any good trying to pick a bottom until the buyers start to return. One sign will be a change in trend on the daily chart. Building a support base will be the first sign that the selling has stopped. Taking out the swing top at $1244.70 will be a sign that shorts are covering.

Those inclined to be bullish gold are going to have to continue to monitor the CFTC data going forward to watch for signs of weakening selling pressure and increasing buying. As of July 24, the data indicates the bears are still in control.

It’s all right there in the CFTC report:  Dollar Index specs holding biggest long positions since January 2017 and gold specs sitting on a record short position. If specs continue to build on these positions then look for the dollar to rise and gold to continue to weaken. If specs start to dump the dollar then gold may start to attract buyers.

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