Gold Remains Range Bound, No Clear Direction

by on May 13, 2014 7:42 am BST

Gold remains directionless with both bulls and bears fighting it out in range bound territory. Gold has been an outperformer this year, after losing nearly 30 percent in 2013. Up 7.7 percent, gold has not seen much safe haven demand as expected during the increasing violent conflicts in Eastern Ukraine.

The US dollar has seen support, which could be offsetting any gains in the precious metal. “Investors will continue to watch for any progress in Ukraine, as well as keep an eye on U.S. economic data for direction,” said Xia Yingying, an analyst at Nanhua Futures Co. The dollar has reached the highest levels in a month of positive US economic data.

The six-month daily chart shows that gold has been range bound since mid-April. The range is tight, between $1,310 and $1,285 per ounce. Open interest in gold futures have flat lined since mid-April and sharply dropped lower since May 5.

1D Chart of GC

1D Chart of GC

Even as open interest fell, net-long positions increased by 14 percent to 102,895 future and option contacts as of May 5, according to data from the Commodity Futures Trading Commission (CFTC). Net-shorts dropped 1.3 percent to 28,320 contracts.

Gold has not reacted to Fed policy as it did in the future, likely because there is still too much uncertainty surrounding the Fed’s policies. The Federal Reserve is expected to continue to taper until the end of the year, but there is no end in sight for a hawkish interest rate policy, which could still be positive for gold.

If the Fed still believes the economy is weak enough for ongoing near-zero interest rates, then there is a possibility that asset purchases may not completely dispensary. Since 2008, there have been four rounds of quantitative easing. There was stoppage of the first two, only to begin another round before Operation Twist morphed into the current QE program.