Buy the gold breakout?
Gold prices consolidated on Tuesday after experiencing a solid rally on Monday. Prices are poised to experience a short squeeze given the most recent commitment of traders report. Prices were pushed higher Monday by news reported in the Chinese Sun Post. On Monday, gold soared more than $23 per ounce on the COMEX exchange, buoyed by a 2.4% increase in the Shanghai stock market.
Precious metals prices were buoyed on Monday after reports surfaced that the South China Morning Post suggesting that Chinese officials were offering fiscal support to some cities and provinces and may lift the ban on property developers raising fresh funds. The Chinese during the past two years have been mitigating capital flows to developers in an effort to reduce housing prices. There have also been reports of second tier banks raising rates offered on long-term deposits.
Hedge funds lined up on the short side of futures and options according to the most recent release of the CFTC commitment of traders report. According to the CFTC, shorts increased positions by more than 11K contracts in the week ending August 6, 2013 while reducing short positions by slightly more than 1K contracts.
Gold prices are edging higher and are poised to test resistance near a horizontal trend line at 1,347. A close above this level would likely lead to a test of resistance at the upper end of the prior range near 1,424. Traders looking for a quick move that could be generated by a short squeeze given the number of futures and options traders that have lined up on the short side could consider a gold long position. Momentum at the moment is flat, with the MACD printing near the zero index level while the RSI is printing near 56 which is in the middle of the neutral range.
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