Is Gold’s depreciation an opportunity or a warning?

Gold prices stabilized and moved marginally higher on Friday, however the big picture indicates the precious metal posted a 2.9% weekly retreat, the biggest drop since May of last year. This upward trend was followed today, Monday the 20th with the shiny metal still holding up amid easing trade tensions between US and China.

Analysts also cited the precious metal edged up due to a weakened US dollar confirmed by the leading dollar index also moving in red area. The buck, which was currently down slightly for the week but up 4.5% year to date, and is a major influence for the precious metal’s value.

Gold, a so called safe heaven currently trades near a 10% low compared to last year and was not successful to rise on geopolitical turmoil around trade-war worries and Turkey’s financial crisis, as focus remains almost exclusively pinned on the stronger dollar. All fundamental news, regarding the US dollar affects the metal, and in general most news state the US economy is on a winning streak and so the shiny metal has paid the price with a downward trend for almost 4 months to date and a 19 month low.

On a more positive note, India a huge Gold consumer mostly due to its traditional rituals was seen picking up demand during the past week as gold prices dropped and attracted buyers. The fact helped boost Gold prices and could be noted as an exceptional event regarding the precious metal demand for last week.

On the flip side, according to Eikon Reuters, financial institutions and hedge fund managers intensified their selling positions in COMEX gold contracts for the sixth consecutive week. This was included in a report released by the U.S. Commodity Futures Trading Commission on Friday. Traders added 13,991 contracts to their bid positions, totaling 77,273 contracts, overcrowding the selling side of the precious metal. The data indicated a record breaking gold short figure since 2006 when information became widely accessible.

The increase in short Gold positions was attributed to the downfall of the Turkish lira in the previous week. After the market witnessed a gap between the US and Turkey relationships, traders added value to the greenback which is preferred as an investment subject to appreciate. It must be noted the other precious metals like Silver were also oversold, adding selling contracts however Copper opposing the whole situation was seen decreasing the short positions.

In addition, most market participants expect Gold to persist its dropping in the current week. However, studying the history of financial markets, speculators can be incorrect big time giving the opportunity to only a handful of people to profit by betting on the opposite side. Gold has lost over 150 USD in value since April and nothing is guaranteed if the US dollar continues to win the battle against its major counterparts.

Gold regained some strength in the latest sessions and broke our previous 1,180 resistance line which has now turned to support. Should the upward movement continue we could see the shiny metal breaking the 1,192 resistance line opening the way for the 1,200 psychological threshold and
stabilize over it. If the round number is breached we could see Gold move even higher. On the other hand, should the bears overtake the precious metal, we could see it breaking once again the 1,180 support line aiming for the 1,170 support barrier.