GOLD TODAY – Greek deal puts downward pressure on gold

Otmane El Rhazi from The Bullion Desk.

Short Term: Medium Term: Long Term: Resistances: R1 1153 SL R2 1162.60 Former support R3 1174.60 R4 1186 DTL Support: S1 1167.50 Jan low S2 1162.60 June low S3 1153 SL S4 1147.20 Recent low S5 1146.80 Dec low S6 1142.90 March low S7 1131.60 Nov low Stochastics:Bullish Legend: R/SL= Resistance/support line UTL = Uptrend line BB = Bollinger band Fibo = Fibonacci retracement line Technical Comment Analysis Gold prices are under pressure today after the EU-Greece deal. The weakness has not been that great; neither should it be considering the lack of safe-haven buying in gold during the Greek saga.  The SL off the November low is providing support today and prices have not yet dropped below the early June low of $1,147.20.  Underlying tails below $1,150 last week, in March and in November suggest underlying buying interest. We wait to see if this remains the case.  The market remains vulnerable but the selling in gold has not been that severe. Macro Factors Gold remains out of favour. The rampant equity market in China may well have drained interest in gold but now the recent brutal correction in Chinese equities may lead to some money rotating back into the physical gold market. If the Greek deal makes progress through various countries’ parliaments, global geopolitical uncertainty could ease, which in turn could make it easier for the Fed to increase interest rates sooner rather than later. This would probably be a headwind for gold. Given gold’s lack of performance when it would have been reasonable to expect some kind of flight to safety, it looks as though gold remains totally out of favour with investors. So we would not expect much of it on the upside – indeed, the path of least resistance is likely to remain to the downside.  The CFTC fund position on gold remains net long but it fell 16,707 contacts last week to 50,448 contracts, the lowest since January 2014. The gross short position at 143,328 contracts is the largest we have on record, which dates back to 2005. So there is risk of short-covering but only if something spooks the shorts… The gross long position is last at 193,776 contracts, which is high, so there may well be room for long liquidation. Conclusion Investors are simply not that interested in gold at present and physical demand is weak. It is difficult to see what would turn investors bullish again. If something does get gold moving higher, watch out for short-covering, which could add fuel to a rally. All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

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