Since testing recent highs near $1,795 in mid-September of 2012, gold prices have traded on the defensive and could continue to face pressure during the first quarter of 2013, a report said.

Many view gold prices as a function of the direction of the dollar which will likely play a large role in determining future price action, said the report released by FinancialTrading.com, a leading source of day trading education.

The dollar will likely remain relatively strong if the US economy begins to show economic gains.  Given the Federal Reserve’s affinity for targeting unemployment, this will likely be the driving factor behind gold price movement in 2013.

The dollar

Historically, as the dollar increases in value, assets that are valued in dollar terms will decline.   If unemployment data begins to decline in an orderly fashion, investors will perceive that the Fed will discontinue their stimulus, which should push US yields higher relative to other countries, which would have a positive effect on the US dollar.

An alternative view of dollar price action is the riskier currencies, such as the Euro and the Pound, will outperform as investors move into other riskier assets such as equities and commodities.  Many of those people that take part in day trading are long on gold as a consequence.

Positioning

Managed money continues to remain long gold futures.  According to the commitment of traders report, released by the CFTC, managed money is long 130 thousand contracts, compared to a short position of 24 thousand contracts.

The most recent week saw managed money long positions increase by 2,100 contract and short positions decline by 1,700 contracts.  The large imbalance of long to short positions is a function of Long ETF positions and funds that track commodities indices and their long positions.

Technically, gold prices begin 2013 are in the middle of a large range that encapsulates nearly 18 months of prices action.  The high end of the range is $1,795, and the low end of the range is $1,526.  Current prices are nearly in the middle of the $270 dollar range.

Momentum on a weekly basis is negative.  The MACD (moving average convergence divergence) index which is an oscillator that assists in measuring momentum is reflecting negative momentum.

The MACD index is printing in negative territory, after creating a weekly sell signal as the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.  The change in moving averages is a forward looking indicator.  The crossover occurs as the index moved from positive to negative territory which confirms the sell signal.

The RSI (relative strength index) which is an oscillator that measures overbought and oversold levels has moved to test the lows seen in July of 2012.  A price breakdown below 1526 would be accompanied by an RSI breakdown below the 40 level which would still keep the RSI index reading above the oversold level of 30.

First quarter prediction

Moving forward, prices will likely gyrate during the US equity earnings season.  Strong upward movements in equity prices are generally accompanied by increases in US yields and a stronger dollar.  Investors can use each side of the current range technical range to place robust risk reward positions with the assumption that gold will likely remain in the current $1,795 - $1,5626 range.

This analysis was provide by FinancialTrading.com, the leading source of day trading education.