Gold Forecast: Awaits confirmation of bearish reversal, OI in call options drops

Gold witnessed a two way price action on Monday before ending the day on a flat note at $1254.95. The price action resulted in Doji candle formation on the daily chart. Prices have retracted more than 50% of the drop witnessed from June 6 to July 7. 

The sell-off in the Dollar Index has stalled around 13-month low, while gold is trading under pressure on expectations the Fed will signal at a meeting starting later on Tuesday its readiness to begin reducing its bond portfolio at its September meeting.

Gold Technicals - Awaits confirmation of bearish reversal

Resistance

• $1258 (previous day’s high)
• $1261.53 (61.8% Fib R of June high - July low)
• $1265.01 (May 18 high)

Support

• $1250.69 (50% Fib R of June high - July low) - $1248 (trend line support on 1-hour chart)
• $1247.60 (support on 1-hr chart)
• $1235.10 (July 20 low on 1-hr chart)

1-hour chart - bearish price RSI divergence

Daily chart - Doji & a bearish follow through?

Comments

• Monday’s Doji candle (indecision/bullish exhaustion) if followed by a close below the rising trend line support of $1248 would confirm bearish trend reversal and open doors for $1239.84 levels (38.2% Fib of June high - July low). 
• On the higher side, only a daily close above $1261.53 (61.8% Fib R of June high - July low) would revive the bullish move. 

Options activity adds credence to Doji candle

The preliminary options activity data for gold released by the CME shows- 

• Big drop in the OI positions in call options: ITM calls - $1245, $1250 witnessed a drop in the OI by 338 and 301 contracts. OI in the OTM - $1260 call dropped by 855 contracts.
• The OI in the put options fell by 459 contracts as well, although the OI in the call options fell by a much bigger number of 2608 contracts. 

The huge drop in the OI in ITM and OTM calls clearly signals bull market exhaustion.