Gold prices are overbought – Standard Chartered

According to the analysts at Standard Chartered, the relative strength index (RSI) implies that gold prices are overbought at the moment which could stall prices in coming sessions.

Key Quotes

“Although prices across the precious metals complex rose over the past week, with the exception of platinum, prices started this week on a softer footing. Tactical investors have increased their exposure to the complex outside of platinum amid an environment dominated by geopolitical and political events. On the one hand, one month risk reversals remain firmly in favour of calls in gold and one-month gold implied volatility has risen to November 2016 highs; however, on the other hand, the relative strength index (RSI) implies that gold prices are overbought. Gold prices stabilised amid thin liquidity given the public holiday, and we see scope for further upside. Physical demand has edged higher and our FX strategists believe the USD is likely to see a longer period of consolidation before recovering in H2-2017. Given the lingering geopolitical and political risks, we believe prices are likely to test the USD 1,300/oz in coming weeks.”

“Heightened geopolitical tensions spurred interest in gold, and North Korea and Syria remain in focus. However, this week’s main interest in gold is France’s first-round vote in the presidential election on 23 April. The latest polls suggest Marine Le Pen (far-right) and Emmanuel Macron (centre) will qualify for the second-round face-off (7 May), which Macron is seen winning with around 60% support. A surprise outcome could provide gold with a fillip. Market positioning was heavier in gold leading up to the Brexit vote, but investors still increased their exposure.”

“Speculative positioning in gold is at its highest since the US election, with gross long positions at November 2016 highs and gross short positions at November 2016 lows. Net fund length as a percentage of open interest has risen to 31% from a low of 8% at the start of the year; however, positioning is still well below the peak of 48% reached in 2011, and 47% reached last year. Gold Exchange Traded Product (ETP) flows have reached 21t already taking YTD flows to 77t; however, total metal held in trust (1,854t) is well below last year’s intra-year high above 2,000t. Thus, market positioning has already picked up and price gains have slowed. However, there is still room for a further increase given the positive sentiment towards gold.”

“In contrast, positioning in silver is elevated but the RSI is not indicating that prices are overbought (although it is close). Fundamentally, demand for silver has improved but the recent jump in prices appears investor-led as opposed to based on industrial demand. Even though gross shorts have slowly crept higher, gross long positions are at a record high, taking net fund length to a fresh high. Net fund length as a percentage of open interest sits at 45%.”