Gold Futures Fall as Longs Continue to Pare Positions

June Comex Gold futures continued to erode on Monday. The market has crossed into a major retracement zone, but with downside momentum. If the selling pressure increases then look for a near-term test of the recent bottom at $1277.40. Crossing back to the bullish side of a 50% level at $1289.45 may be a sign that the selling isn’t taking place with enough conviction to drive it sharply lower.

Fundamentally, the improving U.S. and Euro Zone economies are helping to pressure gold prices because the fear and uncertainty is slowing being lifted. The persistent rally in the equity markets is also helping to draw investment capital away from gold and into stocks. Finally, low inflation in many key countries is taking away one of the major reasons why investors want to hold on to gold.

June Crude Oil prices finished higher, but remained inside last Wednesday’s and Thursday’s range, suggesting trader indecision. Last week, the Energy Information Administration announced close to a record surge in oil stocks, but the prices still rose. This is because investors knew this was coming because of a jam up at the hub in Cushing, Oklahoma. The inability to move crude is what is holding up prices. Once the oil moves out of the Cushing hub, look for the supply and demand fundamentals to take hold, leading to the start of a near-term correction.

The EUR/USD closed lower in limited trading action. Volume and volatility were both down because of an extended Easter holiday. When the market reopens at full strength on Tuesday, look for the selling pressure to continue as investors continue to price in the possibility of fresh quantitative easing from the European Central Bank.

The GBP/USD posted a mild gain. U.K. traders were on holiday, but the market was bid higher anyway. Speculators are increasing bets the Bank of England will hike interest rates sooner rather than later now that the unemployment rate has fallen below the BoE’s 7% threshold.