August Gold settles 1216.7 down $35.90 for the week of May 27, 2016
Gold extended its losing streak another week to four weeks in a row and eight trading sessions currently. The routs from recent highs above 1300.0 an ounce were initiated by the huge speculative and fund longs booking profits in the market. The Commitment of Traders Report as of May 17th showed non-commercial and non reportable traders holding a net long position of 322,891 contracts. For silver, the net long was 90,293 contracts. The world’s largest gold ETF saw their holding rise late last week to the highest level since October 2013. Clearly this market has been overbought for sometime especially in gold.
Given the hawkish stance by the Fed on interest rate hikes starting in June, the gold market has endured mass liquidation of long positions and it doesn’t look like the selling may be over. Basis August futures, the low back in December 2015 came in at 1049.4. The high in early May a few weeks ago came in at 1308.0 A 38 percent Fibonacci retracement from the high comes in at 1209.0 which is exactly where this week’s low is. A fifty percent retracement takes the market down to the 1180 area. Considering gold couldn’t hold the 100 day moving average at 1217.0 settling below it says that the next major target for the downside could be the 200 day moving average at 1164.3. Another issue is that we haven’t seen any bargain buying on these recent dips from top Asian buyers China and India. A report out earlier in the week detailed slumping Indian jewelry demand in the first quarter.
Janet Yellen’s commentary today all but cemented a June rate hike in my opinion. She echoed the same sentiments that were presented from the Federal Reserve’s minutes last week. Of the Fed’s purview for raising rates, the Fed Chair noted that we are close to full employment while inflation is moving closer to the central bank’s 2 percent target. Since the last FOMC meeting in April, a more hawkish tone from the Fed has rallied the dollar, while stock markets have stabilized. These conditions are bearish for gold in the near term. Look for the market to test 1200.0 and potentially fall to down the 1180.0 level next week before bouncing into next Friday’s unemployment report which will have huge ramifications on the market.
Weekly Swing #s GCQ 16 for the week of May 31st through June 3rd
Resistance#2- 1276.8
Resistance#1- 1246.7
Pivot- 1229.5
Support#1- 1199.4
Support#2- 1182.5