After a weak correction on Monday, gold prices have drifted lower again with underlying selling pressure compounded by a fresh dollar advance and upward pressure on US bond yields.
Despite choppy overall trading conditions in US trading on Monday, there was little overall movement in currencies. The dollar overall corrected slightly weaker and US bond yields edged lower, which curbed selling pressure on gold.
There was support on approach to $1,185 per ounce, while rallies were capped around $1,195 and below key resistance.
The latest COT data recorded a further decline in long non-commercial gold positions in the latest week to just over 167,000 from over 177,500 the previous week. This was the lowest long position since the beginning of March, but there is still scope for an underlying unwinding of positions in the short term if spot prices continue to decline and fund selling persists.
Although USD/JPY dipped lower in the late US session, gold was unable to make any further impression on resistance levels and tended to drift weaker with a further test of support towards $1,185.
The dollar also gained fresh support in European trading on Tuesday as USD/JPY approached 113.00. With US bond yields also ticking higher again this pushed gold prices back towards $1,180 ahead of the US open.
The US GDP and consumer confidence data will have a significant impact on short-term market moves, although the longer-term impact is likely to be limited unless the data is substantially different from expectations.
Overall trends in the dollar and risk appetite will continue to have an important impact with dollar strength and a solid tone in risk posing the largest danger to gold bulls, while a sharp dollar correction and deterioration in risk appetite would boost gold prices.
Oil prices will inevitably be subjected to very volatile trading and this is likely to have a collateral impact on gold prices, although markets will not be confident over the likely direction. Any increase in OPEC’s ability to deliver a production cut would be liable to weaken gold on higher yields, although there would be the risk of erratic trading conditions.