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Gold consolidates ahead of Fed

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Gold consolidates ahead of Fed

Gold prices held steady on Tuesday holding above support as the dollar continues to consolidate.  Hedge funds moved back into gold futures in the latest week, speculating that prices would rise given the good technical risk reward gold is providing.  The term structure of gold remains in a slight backwardation showing that demand for the yellow metal remains robust.

The uncertainty of the Fed’s action on Wednesday allowed gold prices to ease slightly on Tuesday morning ahead of housing price data.  With the FOMC scheduled to announce its interest rate decision on Wednesday, after the Commerce Department releases the first look at second quarter GDP, traders are attempting to square some of their positions.

Hedge funds are positioning themselves on the long side of gold futures according to the latest Commitment of Traders report.  According to the CFTC, managed money increased long gold futures positions by nearly 6K contracts while reducing short positions in futures by 8.5k contracts. Long positions in futures now outweigh short positions by 122K to 52K.

Gold futures had recently moved into backwardation where the price of the prompt contract was higher than the deferred contracts.  This generally reflects strong demand for gold.  Gold interest rates in this case drop relative to US interest rates.

Gold has remained stable above support near the 10-day moving average at $1,317.  Short term resistance is seen near the recent highs near 1,350.  Momentum is strong but the trajectory of the MACD (moving average convergence divergence) index is flattening.  The index is still printing at its highest levels seen during the past 6-months.  The RSI (relative strength index) is printing near 55, which is in the middle of the neutral range and well below the 70 overbought trigger level.

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