Commercial hedgers pile shorts; gold risks 6% drop

The CFTC Commitments of Traders report for the week ended May 12 shows commercial hedgers increased short positions by 10,818 contracts. At that time gold was trading near $4,491.

Gold sat below its 20-, 50- and 100-day exponential moving averages while the 200-day EMA was near $4,366. Price action has traded inside a five-month descending channel that began in January.

Chart patterns show a potential head-and-shoulders shape with a left shoulder in early April, a head near $4,890 in late April and a right shoulder around $4,775 in mid-May. The pattern’s neckline is near $4,308. A decisive break below that level would project a measured decline of about 6.35% to $4,038.

Commercial short positions accounted for 71.2% of open interest in the report week. Non-commercial speculators added 7,979 long contracts in the same period, widening the gap between hedging activity and speculative longs.

Options data on the SPDR Gold Shares ETF showed the put-call ratio by open interest rising from about 0.47 in early February to roughly 0.58 as of May 19. The daily volume put-call ratio tightened to near parity at 0.97. Implied volatility stood at 23.22% with an IV percentile around 62%.

Macro developments also affected markets in May. Tension involving Iran put pressure on oil prices and influenced dollar movements, contributing to price swings in commodities and currencies.

Over the past month gold fell about 6.8% and remained up roughly 36% year-over-year. Key technical levels cited by market participants included $4,539 (61.8% Fibonacci retracement), nearer supports at $4,474 and $4,393, and upside invalidation points at $4,775 and $4,890.

Market reports note that a head-and-shoulders pattern is generally confirmed only after a clear break of the neckline with supporting volume; until the $4,308 area is broken decisively the pattern is unconfirmed.