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Gold holds steady as managed money increases short positions

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Gold holds steady as managed money increases short positions

Gold prices were little change on Monday, as investors attempt to absorb last week’s data deluge. Prices of the yellow metal were on the defensive on Wednesday and Thursday as the dollar gained strength on the back of a better than expected US GDP report and solid global PMI reports.  China, European and the US all showed expansionary PMI reports, which increased US yields and the US dollar.

The strength in the dollar, created weakness for gold prices, as gold forward rates made holding gold positions more expensive.  The go-forward rate increased as dollar yields increased, nearly creating a backwardation in the gold market.

Hedge fund traders seem to be reducing their interest in gold futures and options positions according to the most recent commitment of traders report released for the week ending July 30, 2013.  According to the CFTC report, managed money (which reflects hedge funds and large speculative traders) reduced long positions by 975 contracts which increasing short positions by 3.5K contracts.

Prices action for gold has been consolidative.  Prices are capped by resistance near the 10-day moving average at 1,323, while support is seen near the recent lows at 1295.  Momentum on gold prices is turning negative with the MACD (moving average convergence divergence) index as the spread (the 12-day moving average minus the 26-day moving average) is crossing the 9-day moving average of the spread.  The index has moved from positive to negative territory confirming the sell signal.  The RSI (relative strength index), which is an oscillator that measures overbought and oversold levels is printing near 49, which is in the middle of the neutral range and confirms the consolidative nature of gold price action.

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