Thursday, August 28, 2014

Gold is vulnerable for many reasons | …and traders could enhance that tendency

According to the Times of India via an article from Reuters in Singapore, gold is suffering from a lack of buying interest from Asia, where the physical precious metal has traditionally been in demand for both jewellery and as an investment.

Also, the relatively strong US dollar, in which gold and gold futures are priced and which would therefore tend to increase their cost in other currencies, and a requirement for funds to purchase European equities which are expected to rise on the back of a weakening Euro, are placing pressure on the price.

Now we have news of what sounds like a breakthrough treaty on the Gaza Strip and a meeting arranged between Vlad Putin and the Ukrainian president, Mr. Poroshenko, which might lead to something positive. This means that, with the exception of the situation in Iraq and Syria, geopolitical tensions seem to be easing. All these things are bad for the price of gold.

On the Technical Analysis front, the gold spot contract, XAUUSD, has formed a descending triangle which can be best seen on the weekly chart. Here it can also be observed that price has respected the 200 period EMA (blue line), as resistance, and two support levels, at 1275 and 1180 respectively. The lower one has been particularly strong. A descending triangle of this sort is a bearish signal.

…and traders could enhance that tendency

The data on the commitment of traders from Forex brokers, notably Oanda, points to a relatively large number of market participants that are long gold and are now in the money (they have an unrealised profit). These positions are matched with a preponderance of sell orders, which are comprised of those who believe gold is going lower, as well as covering Stop Loss sell orders for those traders who are long and will either wish to lock in profit or limit losses. 

If this situation is matched in the market in general, it indicates that further selling pressure in the yellow metal could be in the offing.

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