GOLD TODAY – Prices still vulnerable but scale-down buying evident

Short Term: Medium Term: Long Term: Resistances: R1 1292 20 DMA R2 1301 Break down level R3 1303.80 May high R4 1344 Top of triangle R5 1359 Brexit-day peak R6 1375.25 High so far R7 1388 HRL R8 1434 Aug 2013 high Support: S1 1359 Previous peak S2 1329 UTL S3 1310.65 July low S4 1302.55 Sep 1 support S5 1301. SL S6 1298 20 DMA S7 1249 38.2% Fibo S8 1230 Triangle target S9 1199.85 May low S10 1046.40 Dec low Stochastics:Rebounding Legend: R/SL= Resistance/support line HRL = horizontal resistance line UTL = Uptrend line BB = Bollinger band Fibo = Fibonacci retracement line H&S = Head-and-shouder pattern Technical Comment Analysis The sideways trading was bound to end one way or another and a break lower on stale long liquidation comes as no surprise. The height of the descending triangle was $70; a similar swing lower from the breakout level would suggest a move to $1,230 per oz. The 38.2% Fibo of the whole of this year’s rally is at $1,249 per oz, with the 50% Fibo at $1,210. The 38.2% Fibo has been breached but prices are holding above it for now. The stochastics have fallen sharply but they have now crossed higher again in low ground. We wait to see if this provides any lift. The danger is that this is a half-way resting place. We initially thought the break lower could turn out to be a downward spike but prices are staying down a little too long for that. So we would not be surprised by another leg lower, with $1,230 a target. Macro picture The shake-out on stale long liquidation seemed highly likely; it was merely a question of timing. We remain bullish overall, though, for the following reasons:  High global debt and how can that be dealt with US election – will there be another populist result there – seems less likely now? Negative interest rates  Geopolitical unrest Potential for broad market corrections, especially in bonds and equities The net long fund position (NLFP) dropped 50,289 contracts last week after a 45,396-contract drop in the previous week. The NLFP is now at 195,219 contracts, down from a recent peak of 307,860 on September 6. Last week’s selling comprised 40,750 contracts of long liquidation and 9,539 contracts of short selling. Given the data covered the period after the main sell-off on October 4, the market may have absorbed a lot of selling without the sell-off gaining momentum. This implies good scale-down buying from other parties. This sell-off and these prices could prompt pent-up physical buying from the likes of jewellery manufacturers but they may want to see that prices have found support first.  ETF buying remains in force – holdings in the gold ETFs climbed 8.4 tonnes on Friday to 2,167 tonnes, a fresh high for the year. Conclusion The sell-off has knocked prices out of their sideways range and the price weakness should now revive buying interest. Friday’s CFTC report showed the main selling pressure came from long liquidation, with a fifth of it coming from short selling. Given that the net long position is still relatively high, the market is still vulnerable to further long liquidation but, if this does not unfold, it would suggest underlying sentiment remains bullish. It certainly does among ETF investors. Prices are vulnerable – there could be another down leg but we would expect dips to remain well supported. All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

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