After 4 Up Weeks, Gold At Crucial Juncture – Pause Likely Before $1,920s Get Taken Out

Gold has rallied for four straight weeks – up more than 14 percent from early March. Last week, the metal just about tested crucial resistance at $1,920s. Conditions – daily in particular – are overbought, and a pause is the path of least resistance before gold bugs could go after that ceiling again.

After a long dry spell, GLD (SPDR Gold ETF) is beginning to attract money. In the week to last Wednesday, $775 million came in, for a three-week haul of $1.5 billion. This follows persistent withdrawals of $8.7 billion in the prior 15 weeks.

Chart 1 uses a four-week total. The bars began to turn green in early May. Before that, it was a sea of red for six months. Incidentally, outflows bottomed in the week to February 25 (arrow), which was a week ahead of gold finding a low on March 8.

In the futures market, non-commercials too are warming up to the metal.

In early January, these traders were net long 279,318 contracts in gold futures, which they gradually began to trim. By late March, they had cut their holdings down to 167,528 contracts. But it was not until early May the green bars in Chart 2 bottomed in earnest – at 170,741 contracts. In the next three weeks, they added each week.

As of last Tuesday, non-commercials were net long 214,642 contracts – a 13-week high.

The turn in non-commercials’ sentiment jibes with the four-week low in GLD flows.

Sentiment improved as gold ($1,905.30/ounce) early this month decisively broke free of $1,760s-$1,770s.

The yellow metal peaked last August at $2,089.20. The subsequent decline bottomed in early March when it ticked $1,673.30, which was again tested later that month. There is decent support at $1,670s and this was defended.

This was then followed by the reclaiming of the 50-day moving average in mid-April. Right around that time, gold retook $1,760s-$1,770s before going sideways until early May. Then, the metal broke free. This coincided with a breakout at a falling trend line from last August’s all-time high (Chart 3).

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