Gold rebounded from the key 4,000 level after softer-than-expected US inflation weakened the dollar and sparked a risk-on move. Mixed futures positioning, rising short interest and a fragile technical backdrop suggest the metal’s recovery may still face headwinds if the dollar resumes its uptrend.
Gold clawed back from its 4,000 support level after a softer-than-expected US inflation report sent the dollar sharply lower and lifted risk appetite across markets, according to FOREX.com analyst Matt Simpson. Rising short interest and a chart still in a downtrend suggest the bounce may still face headwinds.
Soft CPI knocks the dollar
Every key metric came in below estimates, with headline CPI falling 0.4% m/m against a 0.1% forecast and core CPI flat at 0.0% m/m versus 0.2% expected. Annual inflation also eased, with headline CPI slowing to 3.5% y/y and core to 2.6%.
The data made the dollar the weakest major currency, and NZD/USD and AUD/USD outperformed as they tracked Wall Street higher. Separately, President Trump scrapped a proposed 20% toll on shipping through the Strait of Hormuz, though the waterway remains closed by Iran for now.
Futures positioning sends mixed signals
Net-long exposure in gold futures has been climbing, but it no longer looks as bullish as it did two weeks ago. Large speculators increased net longs to a 23-week high of 194.5k contracts last week, driven mainly by fresh longs. However, short positions are also picking up, which could cap gains without a fresh bullish catalyst specific to gold.
Gross shorts rose to a six-week high of 39.5k contracts. Over the past six weeks large speculators added 33k long contracts, against 9.4k short contracts over the past five weeks, so the picture is far from a clean bet for the bulls.
Technicals keep bulls on guard
A bullish piercing line pattern formed by Tuesday’s close after only a marginal intraday break below 4,000, and trading volume ran above average, suggesting bulls are still defending support. But the daily chart remains in a clear downtrend even as prices attempt a double bottom.
Simpson warns that if traders keep buying dollar dips toward 102 on the US Dollar Index, gold’s upside could stay capped and another break below 4,000 becomes likely. Should bears regain control, the October low near 3,900 comes into focus, with the September VPOC at 3,680 further out.
Source: FOREX.com
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