Gold Price Prediction – Prices Drop; Managed Money is Ultra-long and Poised to Liquidate
Gold prices tumbled on Monday breaking through short term support and poised to test lower levels. Prices dropped slightly more than 1.5% on Monday, as traders eyed the most recent commitment of traders report that showed that managed money increased their long position in futures and options. This has placed managed money offside and could be the impetus for a long liquidation in gold. China reported stronger than expected September PMI, which failed to cap the rise in the dollar which paved the way for lower gold prices.
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Technical Analysis
Gold prices tumbled lower dropping 1.5% slicing through support near the 50-day moving and a horizontal trend line at 1,487 which is now seen as short-term resistance. Additional resistance is seen near the 10-day moving average at 1,504. Support is now seen near the 100-day moving average at 1,425. Short term momentum has turned negative as the fast stochastic generated a crossover sell signal in the middle of the neutral range. Medium-term momentum has turned negative again. The MACD histogram is printing in the red with a downward sloping trajectory which points to lower prices for the yellow metal.
Managed Money is Offsides
Prices can fall a long way as hedge funds attempt to liquidate following a technical breakdown. According to the most recent commitment of traders report released for the date ending September 24, 2019, managed money increase its long positions in futures and options by 29K contracts while keeping short positions unchanged. Currently managed money that is long futures and options outnumbers the total contracts that are short by 292K contracts, which had set the market up for long liquidation.
Separately, China reported stronger than expected September PMI readings. Official manufacturing PMI came in at 49.8 versus expectations of 49.6 while Caixin China manufacturing PMI, which is a private reading, came in at 51.4 versus 50.2 expected.