Morning Futures Roundup
Canít Keep a Good Bull Market Down
Fundamentals
Despite widespread media attention and a near record long position by speculators, the gold market keeps making new all-time highs. Among the biggest factors being cited for Goldís continued rise is the lack of investor confidence in currencies. This is especially true given the rhetoric from various governments trying to ìjawboneî down the value of their currencies to help exports. The weakness in the US Dollar is especially supportive for Gold, as the sagging value of the ìgreenbackî makes Gold purchases by non-Dollar holders less expensive. However, Gold has also been trading strongly vs. other major currencies, which adds to the bullish sentiment for the yellow metal. Many technical traders believe Gold has become ìoverboughtî, though, and in need of a correction -- especially in light of the fact that Gold has rallied over $200 per ounce since August, with only minimal setbacks along the way.
The most recent Commitment of Traders (COT) report shows a combined speculative long position of 323,496 contracts as of October 5th. Since that time, Gold has rallied over $40 per ounce, and we may see a new record long position when the next COT report is issued this afternoon. Traders holding long Gold positions will likely want to see prices break through the important $1,400 level soon, or short-term momentum traders may soon begin to liquidate their long positions which could spark a much needed correction and shake-out weak longs and put the market back into a healthier technical state.
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Technical Notes
Looking at the daily chart for December Gold, we notice how few 5% or more up or down moves we have seen during this historic rally. This orderly ascension has been one of the key reasons behind the accumulation of a near-record long position by speculators, as even the corrections have not been severe enough on a percentage basis to shake-out bullish traders -- especially those holding large paper gains.
As we have mentioned in the past, the precious metals markets have a history of making parabolic moves before signaling the end of historic bull markets. This has not yet occurred in the recent Gold bull move, and until we see daily moves of over 5% or more it is too early to call a potential market top. Resistance in December Gold is seen at 1400.00, with support found near the 20-day moving average, currently near the 1320.00 area. Click chart to enlarge:
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About Mike Zarembski
Born in the grain pits of the Mid-America Commodity Exchange (MidAm) in the early 1990s, Mike's futures career soon shifted to the offices of TD Waterhouse in 1999, followed by Xpresstrade in 2002 and eventually optionsXpress in 2007.
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