Since vaulting above $1280 for the first time in more than a year gold has essentially found itself oscillating within a $100 range while making marginal new 52-week highs:
Each marginal new high since March has occurred with waning momentum and met with ample supply above $1300/oz. Gold now finds itself at a crucial juncture with two primary scenarios ahead; 1. A decisive rally to new highs as gold finally gets comfortable north of $1300/oz 2. A break below support at $1280 which ushers in a deeper correction as record levels of speculative longs get liquidated and support down near $1200 gets tested once again.
The fact that commercials now hold a nearly 300,000 contract net short position (the largest number of contracts in history), a short position which has grown by more than 100,000 contracts since March, shows that producers (commercials) have continued to use rallies during the last three months to hedge production. On the other side of the trade are hedge funds, trend followers (CTAs), and independent traders (small speculators).
With speculators now holding a ~$38 billion net long position in gold futures and the GLD exchange-traded fund experiencing a more than $6 billion increase in total assets since March the fast, short term money has already placed big bets on gold. This makes it increasingly difficult to see further advances as the marginal buyers are already heavily positioned and the growing risk now becomes that the hot money loses patience and becomes increasingly fickle.
Simply stated, the technical backdrop for gold has turned mildly bearish. Not enough to move outright short, but enough to hedge and/or reduce existing long positions.
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