Precious metals might face a correction

The markets for precious metals could face a more significant correction. Although the fundamental factors influencing precious metals were positive in the weekly comparison, the precious metal prices, with the exception of platinum, traded lower. Experience teaches that when a market is not rising on positive news any more, but even declines, a severe correction is usually looming around the corner. In this case, even platinum can not escape the downward pressure.

Striking in the development of the gold price in the previous week was that the price came under strong pressure from the futures markets, when pit trading was opened in the U.S. In the econometric models of QCR Commodity Research Quantitative for gold and silver, the respective net positions of large speculators are one of the explanatory variables. But in the case of gold, the net long position increased by 822 to 208,194 contracts, according to the latest report from the CFTC. In silver, the net-long position even rose sharply by 4107 to 35,165 contracts. Overall, this is seen as positive. However, the CFTC data refer to the preceding Tuesday, thus, a reduction in net long position during the previous week is possible. In the largest gold ETF, the SPDR Gold Trust, a slight decline in the gold holdings took place on Wednesday of last week, but they remained constant in the following days.

In the weekly comparison, the U.S. dollar has depreciated against both the euro and also the trade-weighted index of the 5 most important currencies. The S & P 500 Index has improved slightly. The yield on 10yr U.S. Treasury notes rose as a result of positive U.S. economic data to 3.75%, but that overall, should be favorable for the metal. Only oil prices suffered a slight loss during the week. Overall, however, the fundamental factors were positive for precious metals.

The reason given by dealers for the decline of gold prices was technical factors. In fact, the spot price of gold has found resistance at the upper Bollinger Band already in the preceding week. At the beginning of the previous week, gold then dropped below support at 1130 $/oz and the short-term uptrend line has also been broken to the downside. An attempt to get back above this uptrend line has failed on Friday. Therefore, it seems very doubtful whether the support at the lower Bollinger band and the recent pivot low at 1088$/oz will hold.