Gold futures prices have been forming a based during the past week, and are poised to attempt to move higher. Bernanke’s testimony on Wednesday and Thursday was perceived as relatively dovish, which eroded the value of the dollar and increased investors’ appetite for the yellow metal. Mixed economic data in the U.S. allowed U.S. 10-year yields to decline toward 2.5%, which helped gold future prices gain traction.
Federal Reserve Chairman Ben Bernanke was on the hill Wednesday and Thursday giving his bi-annual testimony to both chambers of congress on monetary policy. His prepared statements focused on the lack of solid U.S. employment and that bond purchases would remain consistent until economic conditions improved.
Perception seemed to have changed and U.S. yields now reflect less of a chance that the Fed will begin to taper its bond purchases in September of 2013. Over the past week U.S. yields have declined from 2.70% to 2.50%. The decline in yields has eroded the value of the dollar, which has allowed gold futures prices to edge higher. One of the issues investors faced in early June was grappling with the Fed comments that bond purchases could be tapered in the near future while economic performance was moderating. Now that Bernanke has clearly stated that QE will be tied to employment, market volatility should be reduced.
Economic global data was mixed during the past week with the U.K. showing employment strength and analysts reducing GDP prospects in the U.S. The Claimant count in the U.K. printed better than expected, reflecting an economy that will show modest growth. U.S. retail sales were worse than expected printing at .4% compared to .8% expected by economists. Auto’s make up the bulk of the gains, as the ex-autos retail sales number showed contraction. Growth projections in the U.S. are now less than 1% for the 2nd quarter, which does not warrant a tapering of bond purchase.
Chart courtesy of www.anyoption.co.uk.
Hedge funds have moved back into long futures positions according to the latest commitment of traders report released for the week. According to the CFTC, managed money increased long positions by 3,300 contracts while they also increased short positions by 2,000 contracts.
The technical picture for gold futures prices is positive, but futures will need to recapture key resistance levels to gain momentum. Resistance is seen near a downward sloping trend line near 1,300 and then former support levels near 1,324. Support is seen near the 10-day moving average near 1,271.
Momentum on the August contract is accelerating as the MACD recently generated a buy signal as the spread (the 12-day moving average minus the 26-day moving average) has crossed above the 9-day moving average of the spread. The index has moved from negative to positive confirming the buy signal. The RSI (relative strength index) has climbed back to the 50 level which is in the middle of the neutral range.