A lack of any fresh drivers is taking its toll on gold this week with the precious metal stuck in a short-term range with little reason to look for a breakout. The FOMC meeting next week means that a Fed-speak blackout is in place and with no real big economic releases in the US, markets are starting to tread water ahead of next week’s decision.

A weaker US dollar is giving gold some support, and helping to keep support at $1,700/oz. intact, as traders continue to price in the likely size and speed of US interest rate hikes in the coming months. While the recent sell-off has seen gold hit a one-week low, the greenback remains underpinned by robust fundamentals and will likely bottom out shortly.
 

US Dollar (DXY) Daily Price Chart

(Click on image to enlarge)

At the end of last week, the CME FedWatch Tool implied an 80%+ probability of a 100bp rate hike at next week’s meeting. Today this probability has fallen to 30% as rate bets are pared back.

Gold Price (XAU/USD) Looks Set to Test Multi-Month Support

The weekly gold chart shows gold just above the recent multi-month low at $1,697/oz. while the 38.2% Fibonacci retracement level at $1,725/oz. proved solid resistance when tested yesterday. These two levels are seen holding the price of gold in the short term until a fresh driver comes into play.
 

Gold Weekly Price Chart

(Click on image to enlarge)

Retail trader data show 87.56% of traders are net-long with the ratio of traders long to short at 7.04 to 1. The number of traders net-long is 2.72% higher than yesterday and 5.84% higher from last week, while the number of traders net-short is 0.29% lower than yesterday and 2.36% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Gold-bearish contrarian trading bias.

What is your view on Gold – bullish or bearish?

More By This Author:

Euro (EUR/USD) Forecast – It Is Time For The ECB To Grasp The Nettle
Gold Price (XAU/USD) Looks Set To Test Multi-Month Support
Crude Oil Latest – Will US CPI Help To Provide Any Demand Clarity?