Gold Price Forecast: Re-test Of 200-DMA On Cards?

Gold is losing altitude this Friday as the greenback is well bid on renewed US tax reform hopes. Currently, the metal (XAU/USD) is trading at $1280.84; having clocked a high of $1291 earlier today. For now, the decline appears to have been capped around the 100-DMA level of $1278 levels.

A look at the price action this week indicates the bears have had an upper hand, although the 100-DMA has capped losses in the last two trading days.

So is Gold poised for a rebound from the 100-DMA? To start with, the options data published by the CME shows a strong bearish bias.

Gold OGX7 Open Interest Change: Current (Oct 19 - Prelim) vs Oct 12

• Over the last one week, the open interest/open positions in the Put options have gone up by 1721 contracts, while the open interest in call options dropped by 990 contracts. Investors are clearly positioned for a drop. 
• The sharp rise in the Put options open interest adds credence to the rejection at the 50-DMA seen on Monday.

Gold OGX7 Open Interest Change: Current (Oct 19 - Prelim) vs Oct 18

• Open positions in call options jumped by 449 contracts on Thursday, while put options added 190 contracts.
• The rise in open positions comes on the back of a solid rebound from the 100-DMA. Thus, the moving average is an important level, which if breached to the downside could yield sharp losses as investors who bought calls on Thursday would be forced to unwind their long positions.

The options data indicates Gold could consolidate above the 100-DMA for a day or two, before extending the decline from Monday's high of $1306 to 200-DMA level of $1264.

Technical charts also indicate some potential for a sell-off to 200-DMA. 

Daily chart

Gold's decline from Monday's high of $1306 left a lower high on the daily chart. The descending trend line is seen offering resistance at $1299 (also 38.2% Fib R of July low-Sep high).

The chart also shows:

• Bearish 5-DMA and 10-DMA crossover
• Bearish RSI and Stochastic indicator
• The 200-DMA almost coincides with the 61.8% fib retracement

View

• The outlook remains bearish. Prices are likely to test the confluence of the 200-DMA and the 61.8% Fib of $1263.
• On the higher side, only an end of the day close above the descending trend line would signal a short-term bullish-to-bearish trend change.