Gold Coils On Record Futures Demand, ETF Outflows
Faraday Research | Aug 24, 2017 12:21PM ET
A battle between gold bulls and bears is taking place just below year highs and the upcoming Jackson Hole Symposium could be the catalyst for a big move.h3 Record Futures Demand And ETF Outflows/h3
Last month, we witnessed record demand for gold futures. Of course, the sabre rattling between the US and North Korea was a key driver behind this, but dig a little deeper and a curious dichotomy is apparent. That’s because, in the same month, we also saw significant outflows in gold-backed ETFs.
The difference between gold futures and gold-backed EFT demand can be explained by hedge funds and market speculators favoring futures and longer-term funds and retail investors favoring ETFs. Nevertheless, as the below chart indicates, gold is clearly setting up for a big move.
Before focusing on this week’s price action, let’s set the scene a little. First, we highlight that a resistance zone around the 1,295 mark has formed overhead, which coincides with the April and June swing-highs. Gold prices faltered at this zone on August 11 and broke to 1,300 only to rollover and close at 1,284 on August 18 — a clear false break of resistance — further reinforcing the significance of this zone.
However, with gold locked in a well-established uptrend since July, we now find prices trapped between a resistance zone overhead and a well-established medium-term trend line. Given this, the intense price compression witnessed over the past few sessions should make investors sit up and take note.
h3 Double Inside day/h3As the chart highlights, this week sees gold prices coiling within a series of ever tightening trading ranges. Both Wednesday’s and Tuesday’s trading ranges were fully engulfed by the previous day's candle, forming a ‘double inside-day’ pattern. In fact, if we see prices close at their current level, we'd see a triple inside day pattern form.
Price compression patterns like this are very rare and indicate that a bout of powerful range expansion is to come.
h3 Wait For Breakout Confirmation/h3For us to move long we would need a decisive break and hold above 1,295. A break and hold above a well-established resistance zone would offer a sure sign of bullish momentum and in this instance, we would have short-term momentum aligned with the July/August uptrend. Moreover, with Yellen speaking at the Jackson Hole Symposium on Friday, a potential catalyst for investors to flow into safe-heaven assets like gold is just around the corner.
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