Gold Bugs Put Foot Down Last 2 Weeks, Hoping Cooperation From Real Yields Ahead

Gold peaked last August, before beginning a strong downtrend. Amidst this, gold bugs have put their foot down at dual support, rallying the metal the last two weeks. Important resistance lies ahead. Real yields likely come to gold’s aid in the weeks/months to come.

Gold is at an interesting juncture.

Although it reached an important bottom all the way back in December 2015, the metal began to genuinely lift off nearly two years ago. A rising trend line drawn from that low was defended a couple of weeks ago when gold tagged $1,673.30 intraday. This level also coincides with one-year horizontal support (Chart 1).

Gold has now rallied for two weeks back-to-back. This is potentially important as it preceded a persistent decline since it peaked at $2,089.20 on August 7 last year. From that high, the yellow metal made a series of lower highs within a descending triangle, which it fell out of late February when $1,760s-$1,770s gave way; should the pattern complete, gold could be eventually heading toward $1,440s. Hence the significance of gold bugs’ defense of the nearest support post-breakdown.

Last Thursday’s intraday high of $1,754.20 just about tested the underside of the descending triangle – unsuccessfully so far. But odds favor gold bugs in the weeks ahead, provided $1,670s remains intact.

Last week (as of Tuesday), non-commercials added to their net longs in gold futures for the first time in seven weeks. They hold 180,196 contracts, with the prior week’s 175,163 contracts the lowest since June 2019 (Chart 2).

As a matter of fact, these traders have been cutting back for a while. Gold peaked last August but they began to reduce exposure mid-February after accumulating record 353,649 contracts. Their latest high was 279,318 contracts in the week to January 5. This was when gold bugs gave up trying to recapture $1,920s, which was the prior high from September 2011. On January 6 (this year), gold tagged $1,962.50 intraday but only to reverse hard and close at $1,908.60. By early February, the metal lost both the 50- and 200-day moving averages.

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