Gold price could again not confirm upside breakout

Gold has made again an upside breakout and reached a new record high. However, it could not confirm it once more and has fallen back just as it did in May. Such false breakouts are often signs of a stronger correction. For gold, it is relevant not to fall significantly below the low of 21st May at around 1166$/oz. Otherwise, this would be a chart technical signal for further losses in the gold price.

After hitting a low at around 1,166$/oz, gold could recover in the last week of May. The main reason for this was that investors were willing again to invest in risky assets. Although the flight to the safe haven of U.S. Treasuries and German Bunds continued and the Bund futures reached a new record high, while the U.S. T-Note futures rose to a new multi-month high. This was negative for gold in the previous weeks. However, the volatility indexes fell again and this was crucial, despite the stock markets only stabilized but did not rally. In the preceding week, the gold price received a major boost upwards. In addition to the weaker than expected non-farm payroll report, which again aroused doubts about the U.S. economic recovery, the statements by a spokesman of the new government in Hungary were the main factors for a flight into gold. The domestic policy-oriented statements about a possible Hungarian national debt default triggered a panic in financial markets and the fear of government failures in Europe rose again, even though the Hungarian central bank was ready quickly to contain the damage and explained that the Hungarian budget deficit this year would be estimated at 3.8%, as agreed with the IMF.

Gold rose in the previous week to 1,251$/oz. But the report from Reuters, a Chinese official said at a meeting that China's exports in May were 50% above last year, initiated the change. At the market, the economic prospects were assessed again positive and this led to profit taking in gold.

According to the recent report of the CFTC on the "commitment of traders”, large speculators Increased again their net-long position in the week ending June 8 after they had reduced it in the three weeks before. The net long position rose by 2,852 to 227,398 contracts. Some of these new positions would still be in the plus, but after a continued decline they could also be liquidated quickly and thus could increase the pressure on the price of gold. The gold holdings by the largest ETF, the SPDR Gold Trust, were rising steadily in recent weeks and were at 1306 tons at the end of the previous week. This suggests that in particular retail investors continue to invest in gold.

In the case that stock markets calm down further and fears of a collapse of the economic recovery subside, the gold price could come under selling pressure, especially since the firm US dollar is a burden. The summer months are a seasonally weak period for gold and the price increase does not argue the Asian jewelry industry is likely to expand demand at this price level. The downside risks are not negligible also. In the chart for the spot price there is a risk that a double top formation is emerging. Sustained falls below the correction lows at 1,166$/oz would complete this formation and signal a reversal. The gold price could then fall back down to the low of March at 1,084$/oz.