Gold could fall over 5%

As a follow-up to yesterday's note on gold, I would advise that open interest rose 16% in Comex gold futures yesterday, to a level not seen since late 2011. The bearish technical reverse, combined with volume being 55% above 15-day moving average and with increasing open interest all point to a strong likelihood that "control" is shifting from the bullish contingent to the bearish contingent. The level of confidence for a 5% sell-off in gold should therefore be increased.  
The strength in the dollar index tends to support the notion of lower gold prices as well. I mark a break of a declining channel (dated from March 28) trade in the Dollar Index (dxy).

Yesterday's dollar price action formed a bullish 'hammer' pattern at recent lows.  

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About the Author

Martin McGuire, managing director at TJM Institutional Services