Gold Forecast: Stuck at the trend line hurdle, big jump in Open Interest in OTM puts

Broad based USD selling in the Asian session pushed gold prices to a two-week high of $1239.60. Interestingly, $1239 marks the confluence of 38.2% Fib R of June 6 high - July 10 low and resistance offered by the trend line sloping upwards from Jan 27 low and Mar 10 low. 

Inverse Head and Shoulders played out perfectly

As per the measured height method, the inverse head and shoulders breakout seen on July 14 had opened doors for $1240 levels. The metal has indeed rallied to $1240 and now the 1-hour RSI shows a bearish price RSI divergence. 

Investors buying insurance against gold rally…

The preliminary options data for July 17 published by the CME shows the total open interest in the Put options rose 1346 contracts. The OI in the OTM Puts jumped 1395 contracts, out which an addition of 852 contracts was seen in the 1220 Put option. Meanwhile, the OI in the call options fell by 539 contracts. 

The options data clearly shows that investors are seeking downside protection.

Daily chart

Resistance: 

  • $1239-1240
  • $1248 (50-DMA + 100-DMA)
  • $1250 (50% Fib)

Support

  • $1232.80 (session low)
  • $1229 (200-DMA)
  • $1226 (23.6% Fib)

Comments

  • Gold’s failure at $1239-1240 levels if followed by a break below the session low of $1232.80 would add credence to the bearish divergence on the 1-hour chart and would open doors for a drop to $1226. An end of the day close below $12226 would revive the sell-off from the high of $1296 and could yield a re-visit to $1200 levels. Moreover, a break below $1226 would mark RSI’s failure to break above 50.00 levels. 
  • On the higher side, only two consecutive daily closes above $1240 would revive the bullish view. 

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