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Gold short squeeze could continue

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Gold short squeeze could continue

Gold prices surged on Monday, as softer US yields have led to a selloff in the US dollar.  The yellow metal experienced a technical breakout that could see gold prices rise as traders fully absorb Ben Bernanke’s testimony which put a floor under precious metals prices.

Last week statements from Fed Chairman Ben Bernanke, basically put an end of the perception that the Fed was in a rush to taper its bond purchases, which saw 10-year yields rise more than 100 basis points during the past month.  As yields moved higher during June and the beginning of July, the dollar climbed eroding the value of gold.  As yields declined in the ladder half of July, gold traders have gained confidence catapulting gold prices off of support levels.

Hedge funds drastically reduced short futures positions according to the most recent of traders report for the week ending July 16, 2013.  According to the CFTC, managed money reduced short positions by more than 19K contracts, which is nearly 25% of total short open interest in the prior week.  Hedge fund increased long positions by only 700 contracts.  The release of the data came after the bell on Friday, which helped gold prices rally.

Gold could continue to see a short covering rally on the heels of the commitment of traders report, testing resistance near 1,335, which coincides with a downward sloping trend line.  Support is seen near the 10-day moving average near 41,285.  Momentum continues to gain strength as the MACD (moving average convergence divergence index) prints in positive territory with a strong upward trajectory.  The RSI (relative strength index) is printing near 59, which is the highest level on the yellow metal during the past 6-months.

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