Gold futures prices remained in a tight range on Thursday after experiencing another round of liquidation on Wednesday. Futures for gold August delivery tumbled $50 per ounce on Wednesday as traders quickly looked to exit positions as interest rates in the U.S. continued to rise and the dollar remained robust. It appears that the great short dollar trade is now coming to an end, which includes trades against precious metals such as gold and silver.
On Thursday another data point was released in the U.S. that shows inflation in the U.S. is nearly extinct. According to the Commerce Department core Personal Consumption Expenditures, which is the Fed’s favorite gauge of inflation, it increased by .1% on a month over month basis and by 1.1% on a year over year basis. Although the Fed believes that inflation expectation will increase during the second half of 2013 and the first half of 2014, levels that are well below the 2% gauge of inflation for the U.S. will not be helpful to gold futures prices.
On the spending front, which is another gauge that gold futures traders can use to determine if the yellow metal will gain traction, May’s consumer spending increased by .3% in line with expectations from a revised April number that saw a .3% decline. The net spending for the combination of the two months is zero, which is also a difficult gauge to overcome for gold bugs.
Gold position is also working against gold futures bulls. In the latest commitment of traders report released by the CFTC, hedge funds reduced their long positions in gold. According to the CFTC managed money reduced long positions by 6.8K contract while increasing short positions in gold futures contracts by 9K contracts.
The strength in the U.S. dollar has also been a headwind for gold futures prices. A climbing dollar erodes the value of products, such as gold, that are priced in U.S. dollars. The dollar has been on a tear of late as increasing long term interest rates makes the dollar more attractive. Yield on the 10-year note have climbed nearly 100 basis points over the past five weeks, moving up to 2.6%, which is the highest level seen since 2011. Higher yields reflect a strengthening economy, which has yet to be seen with the current batch of economic data. On Wednesday U.S. officials released revised first quarter data that GDP increased by 1.8% compared to the prior reading of 2.4%.
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The technical picture for gold futures prices is negative, as the commodity has broken through key support levels near $1,322 and $1,265. Resistance is now seen near former support at $1,265 and then the 10-day moving average at $1,310 (chart courtesy of Banc De Binary).
Momentum on gold futures prices is negative with the MACD generating a sell signal last week where the spread crossed below the nine-day moving average of the spread. The index is printing in negative territory while the trajectory of the index continues to move lower. The RSI on the other hand is printing near 24, which is in oversold territory and could indicate that gold might bounce in the near term.