Gold futures have found support around the key psychological level of $4,000 an ounce. However, the momentum reversal seen over the past month may keep ETFs in risk-reduction mode.
That means if gold prices stabilize near current levels, they are more likely to take the opportunity to trim positions. Over the past few months, gold has experienced large-scale liquidation, even as ETF holdings have become increasingly detached from market moves. As colleague Tatiana Darie noted, positioning is now starting to loosen.
The technical picture is also deteriorating: trading has fallen firmly below the 50-day, 100-day and 200-day moving averages, suggesting the $4,000-per-ounce support level may be difficult to hold. Now that gold has dropped below all three key moving averages, the path of least resistance is increasingly pointing toward the $3,800 area, where stronger trendline support may emerge.
Central bank demand should continue to provide structural support for gold prices, but real-money buyers are usually less price-sensitive and will not time their purchases to buy the dip. Therefore, before gold tests firmer support levels, the presence of these investors is unlikely to prevent further technical liquidation.
At present, oil, interest rates and credit markets remain under severe pressure, and the macro outlook poses a challenge to gold's investment appeal. The $4,000-per-ounce level may ultimately become an opportunity for ETFs to exit in search of liquidity, pushing gold into a position reset before it regains upward momentum.
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