Gold Losing its Luster for Investors?

The commitment of Traders report shows that both large and small speculations have been busily liquidating net-long positions with the most recent report showing a net decline of over 20,000 contracts for the week ending April 2nd. There has been similar or even more dramatic shift out of physical Gold ETF's as well funds are being allocated to currently better performing assets such as equities. Though Gold prices have fallen over 12% in the past 6 months vs. the U.S. Dollar, if one were to view gold prices against other weaker performing currencies, such as the Japanese Yen, we can see that Gold has not yet lost all of its luster for trader.

Fundamentals

The nearly 12 year long bull market for Gold is facing its toughest test since the financial crisis of 2008-09 as investor sentiment seemed to have shifted towards equities and away from precious metals. Analysts from some of the largest investment banks have recently turned bearish on the "yellow metal" after prices have declined over $400 per ounce since all-time highs were made back in 2011. Gold has been seen as a "safe haven" investment and was especially popular with investors during the early stages of the European debt crisis. However, Gold has failed to live up to its "flight to safety" status, as prices have tumbled despite continued European economic struggles, a bailout of Cypriot banks, and heightened tensions on the Korean peninsula. Two major factors seem to have shifted investors psychologically; first we have a renewed bull market in equities, especially in the U.S. as well as Japan, with Central Banks fostering very accommodative monetary policies that have forced liquidity into the economy with much of it moving into equities. In addition, inflation fears remain subdued which is taking another valid reason to hold precious metals off the table, at least for the near-term.

Technical Notes

Looking at the daily continuation chart for Gold futures going back 10 years, we notice what appears to be a large descending triangle formation. Prices plunged through the base of the triangle which was acting as a major support area. The biggest question remains whether recent price weakness is really signaling the end-of the Gold bull market or is this just a large consolidation pattern that may ultimately be a base for potentially much higher prices ahead? Prices are below both the 20 and 200-day moving averages and the 14-day RSI has turned weak with a current reading of 28.90. It is difficult to pinpoint a specific support and resistance level when looking at a long term price chart so using a price range would better capture the overall picture. For Gold, we support between 1480.00 and 1500.00. A close below this price range could see a test down towards 1400.00. Resistance is seen from the 200-day moving average, currently near 1662.00, and all the way up to 1700.00. A close above this price range, especially a move above 1725.00, would put a test of 1800.00 back into the picture.