Gold Price Outlook: Gold Rally Faces Key Hurdles
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Gold Soars as USD and Rates Drop
Traders have continued to pull back from popular 2022 trades amid the unwinding of long USD, short equities (tech in particular) and short bonds. This of course had picked up since the release of last week’s US CPI report, while China’s baby steps towards reopening provided a further boost. However, as I mentioned in my Euro piece in yesterday’s report, I believe the sell-off in the USD is somewhat overdone in the short-run and with various assets edging towards their longer-term moving averages in the form of the 200DMA, I would expect this area of resistance to hold on its first test. This also applies to gold, which is trading at its highest level since August and within close proximity to its 200DMA situated at 1803. Two factors that have notably underpinned the precious metal, are a softer dollar and a move lower in real yield.
Alongside this, positioning has likely played a part in exacerbating the upside in gold with the latest COT data showing that a sizeable amount of gross shorts had been covered in the reporting week to November 8th. What’s more, a net short position in gold is somewhat of a rarity as traders have flipped net short only six times in the last 10 years. Generally, when this has occurred risks have often been geared to the topside with Gold averaging returns of over 7% in the following 3-months.
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Gold 3-Month Performance After Funds Flip Net Short
Gold Technical Levels to Watch
That being said, there are critical topside hurdles that will likely provide a challenge in the short run. The aforementioned 200DMA, which is also where the 55-100WMA resides as well as the August highs. As such, there is a risk of a pullback from 1800-10, particularly with momentum indicators showing that gold is heavily in overbought territory. Meanwhile, on the downside, support is situated at 1760-65.
Gold Price Chart: Daily Time Frame