Comex Gold Ticks Modestly Higher On Position Squaring Ahead Of FOMC Outcome
New York (Sept 16) U.S. gold futures rose modestly for the second day in a row Tuesday, helped in large part by traders buying to cover short positions ahead of the outcome of a two-day meeting of the Federal Open Market Committee.
The FOMC is scheduled to release its post-meeting communique and economic projections Wednesday at 2 p.m. EDT, and Chair Janet Yellen is to conduct a press conference half an hour later.
Shortly after the 1:30 p.m. EDT pit close, gold for December delivery was $1.60, or 0.1%, higher at $1,236.70 an ounce on the Comex division of the New York Mercantile Exchange. Spot metal was up $3.70 to $1,235.95 an ounce. December silver rose 11.5 cents, or 0.6%, to $18.735.
The London a.m. gold fixing was $1,232.25, down from the a.m. fixing of $1,238.75.
“With FOMC decision tomorrow, we saw some position squaring today – hence short covering across gold and silver,” said Steve Scacalossi, head of sales for global metals at TD Securities. “However, the markets did run into selling interest in gold ahead of $1,245 and in silver ahead of $18.90. Only a dovish statement tomorrow, or really just something disappointing all the hawks, would trigger a significant wave of short covering and reject the recent downtrend. Given how quickly sentiment shifted in early September, I would say there is more risk to a disappointed market after tomorrow’s statement, as the market still seems very comfortable playing the short side.”
Kevin Grady, president of Phoenix Futures and Options, characterized the short covering as light. This is buying by market participants who have previously gone short, or taken out bearish bets in the futures market. The bulk of the shorts may not capitulate unless gold gets back above its 200-day moving average, he continued. This stood around $1,286.20 as of the pit close.
“There are a tremendous amount of shorts that have come in the market over the last few weeks,” he said.
The amount of open positions in the most active contract has probably been somewhere around 220,000 to 240,000 over the last year, Grady said. However, the most recent data on the CME Group website shows that open interest had risen to 276,068 as of Monday, up from 267,842 as of the end of August. When open interest rises at a time of falling price, this is normally seen as a sign of fresh selling, or short positions.
“You’re seeing a little bit of support around these levels because there are so many shorts,” Grady said.
“A lot of them are holding on. I don’t think the big level of short covering will come until around $1,287, (near the) the 200-day moving average. I think above that, you will see some strong buying….The longer-term shorts will stay in until we get above that level.
“But the weaker shorts…may be covering. You get some people who day trade. They keep coming in when the market is going lower and lower. Early in the session, they started throwing some selling in here and tried to push the market lower. When you don’t get follow-through, a lot of these guys are getting out at the end of the day.”
Nearby support for December gold lies at Monday’s eight-month low of $1,226.30 an ounce. Traders have also cited the psychological $1,200 level and listed $1,180 as an especially important price chart, as this was a double-bottom of the 2013 lows on a futures continuation chart.
One upside technical-chart area the market is bumping up into around $1,242, which failed as support this month and as a result became resistance. The 10-day moving average lies at $1,249.70, with the other widely followed moving averages a ways above this.
Data Tuesday morning showed a flat producer price index, the lowest reading since December. The Labor Department reported that core PPI excluding the volatile food and energy sectors rose 0.2%. Consensus expectations compiled by various news organizations call for the headline number to be flat and core PPI, excluding food and energy, to be up 0.1%.
Ahead of the FOMC outcome, U.S. economic data earlier Wednesday include the August consumer price index and second-quarter current account at 8:30 a.m. EDT, followed by the National Association Homebuilders market index at 10 a.m. CPI is expected to be steady, while CPI excluding the volatile food and energy sectors is forecast to be up 0.2%.
