Gold futures prices (COMEX:GCV13) consolidated mid-week, after testing resistance on Monday and Tuesday. Fears associated with tensions in Syria have pushed the yellow metal back above the $1,400 level for the first time in nearly three-months. Hedge funds have moved back into gold positions according to the most recent Commitment of Traders report.
Yields in the U.S. moved lower in the face of an impending military strike against the Syrian regime, after the regime used chemical weapons against their own people. It is now becoming harder to move forward with a strike as the UN wants to finish its investigation into the use of chemical weapons. For the U.S., a full strike is nearly impossible without a very strong commitment to the rebel forces.
As gold futures prices have moved higher, gold interest rates have declined making it more efficient to purchase gold as the yield differential has moved in favor of the yellow metal. Gold trades like a currency and to hold on to long positions, traders need to pay away and interest rates, which they borrow.
Hedge funds have decreased short positions while increasing long positions according to the most recent Commitment of Traders report, released by the CTFC. According to the government report, managed money increased long positions by nearly 9K contracts while reducing short positions by 7,600 contracts in the week ending August 20, 2013. The change to long position and away from short positions totaled nearly 17K contracts, which is approximately 10% of the outstanding futures contracts held by hedge funds.
Gold futures eased in Asian trading as July retail sales came in much lower than expected. Retail sales came in at -0.3% year over year, vs. expectations for +0.1% and +1.6% in June, with the decline led by a 6.2% drop in auto sales. Overall, Japan’s earnings growth remains subdued even though summer bonus increased in large companies.
Gold futures prices for the October contract tested resistance levels near $1,415, which coincides with the June highs, as this chart from Alpari.com shows. A close above this level would likely lead to a test of target resistance near $1,490. Support is seen near the 10-day moving average near $1,389. Target support is seen near an upward sloping trend line at $1,340. This trend line connects the lows in June with the lows in August.
Momentum continues to point to higher prices with the moving average convergence/divergence index printing in positive territory. The MACD created a buy signal in early August and continues to show a positive trajectory. The relative strength index moved above the overbought trigger level of 70 at the beginning of this week, and although it has dipped it still is printing at 70, which should be a warning signal that gold futures prices are slightly overbought.