Gold prices went lower yesterday during US hours, despite the wheels of the bull rally wagon coming off, which should in theory invoke higher bullion prices due to the yellow metal’s safe haven nature. However, if we consider that prices have been increasing recently due to speculative buying, and not due to anit-risk rally, then the decline became less peculiar. What we are seeing yesterday is simply speculators clearing a portion of their long positions acquired during 1200+ levels. That is the danger of speculative bull runs – where prices can indeed push higher quickly, but any sign of stalling may result in a quick exodus of these speculative positions as traders would have very little reason to hold. Simply put, the long term conviction is just not there. Right now, it is unlikely that all the speculative hedge funds have cleared the entirety of their positions, but it may not be unreasonable to believe that their 1st bullish objective – namely the consolidation 1,330 – 1,340 has been reached. Moving forward, if hedge funds stop building up their long positions once more, it is unlikely that Gold prices will rally strongly up in quick succession like before. A good way to gauge this would be to see the Commitment of Traders report next week and see if Non-Spec longs continue to build up or decrease. However, it should be noted that COT data is highly laggy, hence traders may wish to use the OANDA Open Position Ratios which is the live updated ratios between bulls/bears. But it is also important to note that the ratios are based on retail traders numbers, and hence users should be aware of the acute difference before basing their trade decisions on it.
From a technical perspective, price has broken the Kumo and is trading within a tight channel between 1,317 – 1,323. A late US session rally attempt failed to climb back above the rising trendline, resulting in a bearish rejection which will pile more pressure on the 1,317 support. Forward Kumo has since performed a bearish Twist, adding weight to the bearish outlook. However, Stochastic readings disagree, suggesting that prices is currently undergoing a bullish cycle. It is possible that both scenarios are not mutually exclusive. Price may still be able to rally higher towards 1,330 but keep below the rising trendline and the overhead Kumo before rebounding lower, hence not invalidating the bearish signals elaborated previously and at the same time fulfill the bullish cycle shown in Stoch. In this case, this bullish cycle can only be interpreted as corrective, and should not be treated as a long-term bullish cycle that can break above 1,350.
Daily Chart shows strong bearish pressure on price. The rally that started from early July has now hit a snag, unable to breakthrough the Senkou Span B. With the flat Senkou Span B in front, there is a higher likelihood that price may gravitate lower due to the flat line’s magnetism. This agrees with Stochastic outlook which suggest that price may be entering a bearish cycle soon. Nonetheless, if price does manage to break away from the Kumo, the consolidation zone between 1,340 – 1,420 will open up.
Should price does break below the Senkou Span B which is very close to the 1,300 round figure, it is possible that the speculative funds may close out more of their profitable positions. However, if we do not see any strong selling action under 1,300, the likelihood of price holding above 1,250 via Senkou Span A increases, and we may be able to launch yet another attack towards 1,300 and perhaps the descending Channel eventually.