In 2019, investment in gold seemed to be one of the best, because only in the period from May to August the price of an ounce in US dollars increased by about 20 percent. Meanwhile, from August 2018 to the high of January 2020, the increase was more than 30 percent, which made the gold market one of the most popular both among investors and the media. Can gold lose its shine then?
Along with such a significant price increase, long positions among non-commercial investors on the gold market also increased, which results directly from the Commitments of Traders reports published by the American CFTC commission. To illustrate the scale of increase in net long positions, let's go back to October 2018, when bearish mood prevailed, and net long positions were at -38 000 contracts among non-commercial investors. From then to the first half of January 2020, long net positions increased to almost 330,000 contracts. We have not seen such a strong growth in this market for the entire decade.
From the point of view of the chart of gold expressed in US dollars from September 2018 to early January, we may have a potential end to the upward wave - according to the Elliott wave theory. The last dynamic rise of the price above USD 1,600 together with the following equally fast decline, in addition on the futures market with increased trading volume, seems to be a partial profit taking from earlier long positions.
Additionally, we can observe the largest overbought conditions on the gold market since July 2016. At that time, speculators on the futures market had a similar number of open long positions as at the beginning of January 2020.
Long positions on a gold futures contract among non-commercial investors. Source: tradingster.com
Therefore, if the profit taking deepens, it is possible that the price of gold could have difficulty staying stable at current or higher levels and may be heading towards USD 1,450 per ounce in the near future.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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