Gold Above $2,400 as Crowded Longs Face Jobs Risk

Positioning data from the Commodity Futures Trading Commission shows speculative longs in gold futures near a three-month high. That leaves the trade crowded. A jobs surprise to the upside could trigger a sharp unwind. "The risk is asymmetric to the downside here," said a New York-based macro fund manager. "Everyone is long gold and short dollars. That trade works until it doesn't."

On the physical side, central bank buying continues to provide a floor. China added 8 tonnes to its reserves in June, the 18th consecutive monthly increase. That pace is slowing from the 20-tonne monthly average in the first quarter. The marginal buyer is stepping back.

Gold's 14-day relative strength index is above 70, a level that often precedes a pullback. The last time RSI was this high, in April, gold fell 5% over the following two weeks. Technical traders are watching for a break below $2,380, which would confirm a short-term top.

The jobs report is due Friday at 8:30 a.m. ET. Options pricing implies a 1.5% swing in either direction. The Fed's next meeting is July 29-30, and the payrolls number will shape expectations for that decision.

For more on gold's recent moves, see the gold profile and commodities analysis. The crowded positioning and rising real yields make this a binary setup heading into the week's biggest data point.