Gold Could Fall 6% as Commercials Add Heavy Shorts

Commercial hedgers added 10,818 short contracts in the week ending May 12, bringing commercial shorts to 71.2% of open interest, while non-commercial speculators added 7,979 long contracts in the same period. Gold has traded below its 20-, 50- and 100-day exponential moving averages and remains inside a descending channel that began in January. The 200-day EMA stood near $4,366 as the next structural support.

Price action has formed a head-and-shoulders pattern. The left shoulder appeared in early April, the head peaked near $4,890 in late April, and the right shoulder topped around $4,775 in mid-May. The neckline slopes down near $4,308; a confirmed break below that level would project a measured move to about $4,038, roughly a 6.35% decline. Near-term reference levels include $4,539, $4,474 and $4,393.

Options activity on the SPDR Gold Shares ETF showed put accumulation. The GLD put-call ratio by open interest rose to 0.58 from about 0.47 in early February, and daily put and call volumes were nearly even with a 0.97 ratio. Implied volatility on GLD was about 23.22% and the IV percentile near 62%.

Macro developments included heightened tensions involving Iran and higher oil and commodity prices since the start of the conflict. Higher energy prices have affected inflation expectations and influenced the dollar at times; the dollar has not moved decisively in one direction in recent weeks. Gold was down about 6.8% over the past month and remained roughly 36% higher year-on-year.

Traders are monitoring the 200-day EMA, options hedging and commercial positioning for signals of further price movement. Until the $4,308 neckline is clearly breached with confirming volume, the head-and-shoulders setup remains an unconfirmed pattern.