Gold Price: Struggling Against Strengthening US Dollar Headwind
Gold Prices, News and Analysis
- Risk-off rally has dissipated, and gold looks increasingly vulnerable.
- Battle between retail investors and speculators continues.
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Gold Price Nears Important Support
The recent risk-off inspired rally in the precious metal has abated for now, leaving gold looking toppy near its recent multi-month high. The sharp sell-off in the equity (risk) space was triggered by concerns over higher US interest, and bond, rates, a view that proved prescient after Wednesday’s hawkish FOMC minutes. The hawkish tone from the Fed’s Powell firmed expectations of at least three rate hikes in 2019, with a December 2018 rise now fully baked in. And with the Fed looking to get ahead of any inflation uptick, market expectations are starting to grow for a fourth-rate hike in 2019 which would see the Fed Funds rate rise to 3.25% to 3.5% from a current level of 2.0% to 2.25%. Gold may find sharply higher short-term US Treasury yields difficult to fight against.
The daily gold chart points to an important technical support level – the 61.8% Fibonacci retracement of the December 2016/April 2018 rally – at $1,215.6/oz. This level also coincides with two recent lows on October 12 and 14 that underpinned the push to the recent $1,233/oz. high print.
Gold Daily Price Chart (March – October 18, 2018)
Gold Positioning: Speculators Heavily Short, Retail Long
Retail investors remain long of gold (81.3%), according to the latest IG Client Sentiment Report, usually seen as a bearish contrarian set-up. Recent changes have shifted the retail bias to bullish for gold positing however the current long-to-short ratio of 4.34 to 1 should not be ignored. Speculative traders are net-short of gold and the recent CoT report showed those shorts growing over the last week. The battle between the two continues.
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--- Written by Nick Cawley, Analyst
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.