Gold prices consolidate as hedge funds liquidate long positions
Gold prices have stabilized in the ladder part of the week, after declining for most of last week as traders continue to liquidate long positions. Gold forward interest rates continue to work against gold bulls as the differential makes it more expensive to borrow gold and hold it for an extended period.
Hedge funds continue to exit long gold positions according to the most recent commitment of traders report released for the period ending 6/25/13. According to the CTFC, managed money reduced long gold positions by approximately 4600 contracts while increasing gold short positions by slightly more than 3600 contracts. Hedge funds still own 108K long gold futures contracts compared to short 79K of futures contracts.
With the recent release of better than expected US employment data in the form of the ADP private employment report that showed an increase of 188K jobs, the likelihood of additional quantitative easing has declined. Higher interest rates, works against gold prices. Additionally, inflation expectations continue to fall, which can be viewed by looking at the most recent Personal Consumption Expenditures which showed a paltry increase of only 1.1% on a year over year basis.
The technical picture for gold shows a pause near the 1250 level. Prices have declined nearly 30% over the past 6-months. Short term resistance is seen near the 10-day moving average near 1,250, while support is seen near the recent lows at 1,200.
Momentum on gold prices could be changing. The MACD (moving average convergence divergence index) is poised to generate a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The index looks like it will move from negative to positive territory which would confirm the buy signal on gold prices.
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