Retail Traders Increase Short Bets as CPI Nears

Gold, Silver, Retail Trader Positioning, Technical Analysis – IGCS Commodities Update

• Gold, silver prices maintain upside focus before CPI
• Retail traders continue building downside exposure
• What are key technical levels to watch ahead?

Gold prices, and to a lesser extent silver, have been focusing on the upside in recent weeks as traders increasingly looked to a less hawkish Federal Reserve in the medium term. Now, all eyes this week turn to December’s US CPI report. Recently, softer average hourly earnings and disappointing ISM services data likely helped set a softer expectation for the inflation data.

Looking at IG Client Sentiment (IGCS), retail traders have been responding by increasingly selling gold and silver. IGCS tends to function as a contrarian indicator. As such, if this trend in positioning continues, further gains might be in store for precious metals. Let us take a closer look.

Gold Sentiment Outlook – Bullish

The IGCS gauge shows that about 60% of retail traders are net-long gold. Since most traders are still biased to the upside, this hints prices may fall. But, downside exposure has increased by 12.59% and 35.74% compared to yesterday and last week, respectively. With that in mind, recent changes in positioning hint that prices may extend recent gains.

XAU/USD Daily Chart

Gold prices have reached the key 1879 – 1869 resistance zone which was established back in June 2022. Clearing this range would open the door to extending the uptrend since November. But, negative RSI divergence shows that upside momentum is fading. That can at times precede a turn lower. Keep a close eye on the 20- and 50-day Simple Moving Averages (SMAs). These could reinstate the upside focus.

Chart Created in Trading View

Silver Sentiment Outlook – Bullish

The IGCS gauge shows that about 74.4% of retail traders are net-long Silver. Since most of them are net-long, this hints prices may fall. But, downside bets have increased by 4.64% and 6.87% compared to yesterday and last week, respectively. These recent changes hint that prices may push higher ahead.

XAG/USD Daily Chart

Silver continues to consolidate just under the 78.6% Fibonacci extension level at 24.272. Negative RSI divergence is present, hinting that a turn lower could be in the cards. Such an outcome would place the focus on the 50-day SMA. The latter could reinstate the upside focus. Otherwise, extending gains exposes the 100% Fibonacci extension at 25.275.

Chart Created in Trading View

— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

To contact Daniel, follow him on Twitter:@ddubrovskyFX