Gold Retreats From Highs As Fed Meeting Looms
Today’s Spotlight Market
Speculative accounts continued to add to existing bullish positions in Gold futures last week as prices reached their highest levels in nearly a year. The most recent Commitment of Traders report shows non-commercial and non-reportable traders adding nearly 30,800 new net-long positions during the reporting period ending March 8. While we most likely saw some long liquidation this week as weak Gold bulls covered positions ahead of the Federal Reserve Open Market Committee Meeting (FOMC) that ends today, the overall bullishness towards Gold by trend-following traders still appears strong, but we will need to see some further upward momentum and, in particular, a close above the 2015 highs at 1307.80 for the lead month futures before we may see any additional significant buying emerge by systematic funds.??? ?
Fundamentals
Gold has been one of the few bright spots for commodity bulls so far in 2016, as prices rallied over 20% prior to a recent set-back the past several sessions. The Gold market has benefited from rising volatility in global equity markets, concerns for global economic growth, and political uncertainty in many parts of the globe. It has been this general uneasiness among investors that has once again triggered a move towards Gold as a so called ?safe haven?, especially in an environment of low to negative yields for top-rated government bonds and a U.S. Dollar that has been trending lower versus a basket of major currencies since December of last year. Today could be a critical day for helping to establish the next move for Gold prices, as we will have the release of the statement following the 2-day FOMC meeting. While many market participants are not expecting any movement in interest rates today, the tone of the Fed statement could offer the market clues as to how the Fed is currently viewing the global economic climate and, perhaps more importantly, whether the Fed is prepared to raise interest rates in the coming months. As of this writing, Fed Fund futures are pricing in a 22% chance of a rate hike at the April FOMC meeting and a 49% chance at the June meeting. A potential increase in rates would likely generally be viewed as bearish for Gold, as a U.S. rate hike could help to strengthen the U.S. Dollar, which is generally viewed as negative towards commodity prices. In addition, since holding Gold does not pay a dividend or generate interest, higher U.S. rates could discourage Gold ownership as funds shift to higher yielding assets. However, should the Fed appear ?dovish?, we could see the Dollar continue its recent downward trajectory and be the ?catalyst? for momentum traders to jump back on the bullish Gold trade.? ?
Technical Notes? -? View Today’s Chart
Looking at the weekly continuation chart for Gold futures, we notice the short-term uptrend in prices has started to run into some resistance, as the lead month futures failed to test psychological resistance at the 1300.00 price level. The 14-week RSI has twice approached the 70 level and was turned back both times. The weekly chart shows three key resistance barriers that need to be overcome before we are willing to call an end to the nearly 5-year longer-term down move in Gold prices. The first level of major resistance is seen at the 2015 high at 1307.80. Above this price level sits the 200-day moving average, which is currently near the 1334.50 price area. Most important, in my opinion, is the downtrend line that is drawn from the historic highs made back in 2011. Currently this trend line sits near the 1393.30 price area, and a close above this trend line, especially on a weekly basis, would be a strong indicator that the longer-term trend for Gold prices now may be favoring the bull camp. Chart support is found at 1189.00 and at the 20-day moving average, currently near the 1133.80 price area.??
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