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Gold Poised to Test Lower Levels

David Becker
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Gold prices continued its move lower on Thursday after experiencing a brief respite during the early portion of the week. Hedge fund traders continue to line up on the short side of futures and options positions according to the most recent industry report. With inflation expectations dwindling, there is little demand for gold, which could easily continue to slide to target support levels.

The current economic environment will make it difficult for gold prices to gain traction and hold support level. Better than expected economic data is driving yields in the US higher. This in turn is making the US dollar more attractive as investors can hold dollars relative to other currencies and pick up a yield differential created from higher US interest rates. A stronger dollar erodes the value of gold prices, given the major of gold is quoted in dollars and many treat it as a currency against the greenback.

Hedge funds traders continue to line up on the short side of the futures and options ledger according to the latest report from the CFTC. The most recent commitment of traders report released for the week ending November 26, 2013 shows that managed money increased short positions in futures and options by slightly more than 12K contracts (or 1.2 million ounces of gold). At the same time traders reduced long position by nearly 200 contracts. Long positions by managed money still outweigh short positions by 106K to 74K.

Gold prices continue to test the November lows near 1190. A break of this level would likely lead to a test of support near 1160. Short term resistance on the yellow metal is seen near the 10-day moving average at 1240. Momentum is lower with the MACD printing in negative territory with a downward sloping trajectory.

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