Gold stabilises above 2300, open interest plunged last week: COT report

I outlined a near-term bearish scenario for gold on Monday. But despite a promising start late in the Asian session, bear could only muster a false break before momentum burst higher, with weaker yields and a US dollar providing an extra spring in bullish steps.

We don’t have a huge amount of data ahead of a key ISM services report tomorrow, and that could allow for some further upside for gold over the near-term. And with prices retracing lower during Tuesday’s Asian session, the aim is to identify area for potential bullish setups.

The daily chart shows a small bullish engulfing / outside day formed on Monday, which also coincides with a bullish divergence with RSI (2). Monday’s low also found support perfectly at a 78.6% Fibonacci level and high-volume node, with the 50-day EMA also nearby. So as long as prices remain above that low then it seems bulls have the upper hand with the US dollar index on the ropes.

As mentioned in today’s Asian open report, the US dollar index trying to hold above the 104 handle after its trendline break and daily close beneath the 200-day average. Given the lack of bearish follow through for  USD in today’s Asian session, perhaps it can manage a minor bounce – and that could help gold pull back a little further.

The 1-hour gold chart shows it met resistance at the weekly R1 pivot on Monday, s bulls could seek dips around the weekly pivot point in view of a break above the cycle highs. Strong volumes accompanied the rally from the 78.6% Fibonacci level, hence the bias for a near-term upside break above Monday’s high towards 2380.

Gold futures positioning from the COT report:

On a sidenote, open interest for gold futures fell at their fastest weekly pace since November 2022. Large speculators and managed funds decreased long and short exposure, and whilst net-long exposure increased it was simply because shorts were closed at a faster pace than longs. So yes, futures traders remain very bullish with gold still relatively close to its record high, but the loss of volumes could be taken as a sign of less confidence it will simply break to a fresh high.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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