Weekend Gold Analysis

To begin these comments, let's take a look at the hedge fund positioning in the Comex gold futures through Tuesday of this past week. April gold closed at $1311.40 that day having closed at $1359 a week earlier ( Tuesday, March 18). That is a loss of $48 over the reporting period that the CFTC employs.

In looking at the chart ( a comparison of the hedge fund NET positions against the price of the metal ) you can see what happened. A combination of LONG LIQUIDATION and NEW SHORTING produced a drop of some 18,000 contracts ( futures and options combined ) in the overall net long positioning of the group of traders. The Blue Line is the hedge fund net position while the red line is the gold price.

The result? - Gold moved lower as this group of large traders was selling. Through the end of the week, gold dropped another $17 to settle at $1294 in the April contract, which by the way goes into its delivery period next week.

Here is the Daily or short-term chart.

There are several things to note. First, Bears are back in control of this market on this time frame. Negative Directional Movement is above Positive Directional Movement and the ADX has turned lower and is continuing to move down indicating the break in the uptrend. The recent uptrend that began in January has halted with the market having given up over $100 off its best level of this year.

Second - the "golden cross" which some were touting as sign of a new bull market beginning has been negated as price has fallen below that level of the cross ( the 50 day moving average crossed up and above the 200 day moving average from beneath).

Third - the sloping uptrend line drawn off the late December low has been violated to the downside.

These are all bearish signals.

The one bullish signal on this chart is that the important 50% Fibonacci retracement level of the entire rally from that same December low near $1180 to the recent high near $1392 has thus far held. That level is near $1287. Bulls managed to keep price from penetrating that level for long before it recovered.

On the short term chart, the bears have the clear advantage.

Let's shift to the weekly or intermediate chart. I have included another old, but reliable technical indicator, the Stochastics, because of the nature of the price action on this time frame.

Let's first look at the Directional Movement Indicator. Notice that the ADX line ( the dark line ) continues to move lower indicating a TRENDLESS MARKET. If a market is trendless, that means it is moving sideways. That is exactly what gold has been doing on this time frame. It is essentially meandering back and forth in a very broad range as noted in that green rectangle I have shown. Support down near $1200 and below is intact while resistance near $1400 is also intact. We have what amounts to a $200 range within which gold is working.

What one usually experiences with a market moving within a broad trading range is the perma bulls begin coming out with their "to the moon" price predictions and all manner of wildly bullish scenarios as price works its way up towards the top of the range.

The perma bears on the other hand, begin talking their "price is going to collapse" scenario as the price works it way down towards the bottom of the range.

In other words, the bulls get noisier as price moves higher while the bears get noisier as the price moves lower.

The Directional Movement lines indicate that while the bulls have seized control of the market  ( +DMI (blue line) crossed above the -DMI ( red line), they are in danger of surrendering their mild advantage if they do not quickly assert themselves.

I have also noted the Stochastics indicator because this is designed for trendless markets. Note the area within the rectangle on the price chart and look at the action of the stochastic indicator. It has been moving higher generating buy signals as price has bounced off of support at the bottom of the range and generating sell signals as price has stalled out at the top of the range. It is currently in a sell mode .

Lastly here is the monthly or long term chart.

The Directional Movement Indicator shows that the market is moving sideways as well with no clear trend although bears currently have a slight advantage in that -DMI remains above +DMI. Those lines are converging however so the bears will need to reassert themselves sooner rather than later if they are to retain control on this long term frame.

Also, the MACD indicator, while still in a bearish mode, is working on putting together an upside bullish crossover which would generate a buy signal based on that indicator.

Lastly, the sloping uptrend line drawn in red has thus far held. One can see that the $1280 level is a pivot with price working around it on both sides.

The chart is inconclusive at this point. The long term uptrend is still intact near the 38.2% Fibonacci retracement level although both indicators show bearish forces still in control. Bulls are attempting to wrest control of the market from them but have not as of yet managed to do so. A push through this week's high near $1400 will be required to tip the scales in their favor in my opinion. Before that can occur however, $1300 will have to be captured.

We'll see how the battle goes.