Gold Chart

Price of Gold Fundamental Weekly Forecast – Hedge Funds Likely Slashed Record Short Positions Last Week

Gold prices reversed course and spiked higher last week after a plunge in the U.S. Dollar. The greenback came under pressure after Fed Chair Powell dropped hints about the direction of U.S. monetary policy, which dollar traders interpreted as dovish.

Last week, December Comex Gold settled at $1213.30, up $29.10 or +2.46%.

Traders felt that Powell was leaning toward the dovish side after saying a gradual approach to raising rates remained appropriate to protect the U.S. economy and keep job growth as strong as possible with inflation under control.

Simply stated, bullish gold traders felt that the dollar could become a less-attractive investment as the Fed approaches a more neutral stance, while at the same time other major central banks are likely to begin raising rates.

Dollar Controlling Price Action

The dollar started the week under pressure with some of the selling being driven by dovish comments from FOMC member Raphael Bostic, who said on Monday that he believes that relatively tame inflation warrants only one more rate hike in 2018. Late in the session, a comment by President Trump spiked the market lower into the close.

The U.S. Dollar recovered a little on Wednesday and Thursday after the minutes of its July 31 – August 1 FOMC meeting, revealed that the central bank plans to continue its gradual pace of rate increases. It further added that Fed officials are wary of tariffs hurting the current economic recovery but are waiting to see evidence of widespread damage in economic data.

Weekly gains were erased on Friday after a key speech by U.S. Federal Reserve Chairman Jerome Powell. In his widely expected speech before a group of major central bankers at the Jackson Hole, Wyoming symposium, Powell said he anticipates a slow and steady pace of rate hikes as the central bank looks to balance economic growth and curbing lofty asset prices.

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There were no government reports on hedge fund and money manager positions, but we have to suspect a drop in the record number of net short positions announced in the week to August 14. Last week’s strong upside bias was likely fueled by massive short-covering.

A significant drop in the number of net short positions will be very important to the chart structure because this could be interpreted to mean that short-sellers are aggressively covering, and new buyers are returning.

Since the Commodity Futures Trading Commission’s Commitment of Traders report doesn’t come out until next Friday, we’re just going to have to assume that shorts are covering and new buyers are taking advantage of the relatively cheap gold prices.

Reports are scare this week with the only major news U.S. Third Quarter Preliminary GDP. Traders expect the report to show the economy grew by 4.0%.

The dollar will also continue to significantly influence the price action. Last week ended with investors pressing the upside. They feel that despite Fed Chair Powell’s hawkish tone, his speech may have suggested he was content with only a few more rate hikes before the Fed stops raising rates. This is potentially bearish for the dollar, which will allow gold to potentially recapture a significant portion of its recent losses.

Published by

James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.