Gold rallied to a $20 relief rally after the US jobs report. Despite this, analysts remain cautious, citing negative macro factors and dangerous technical levels that could push the precious metal down next week.
Edward Moya: The gold is becoming a punching bag!
cryptocoin.com As you follow on , a strong US dollar and rising interest rates caused gold to drop below $1,700 earlier this week. Edward Moya, senior market analyst at OANDA, comments:
Gold becomes a punching bag as rising Treasury yields revive the king dollar. It’s been bad news for precious metals everywhere. There is no delay in sight for gold until the higher move ends with global bond yields.
Frank Cholly: Gold market is bearish
However, analysts see Friday’s move as a short closing rally only. Frank Cholly, senior market strategist at RJO Futures, commented:
The market is in a downtrend. We could not hold levels above $1,800. The $1,700 level is the lowest level. I expect the market to stick to the choppy range. And I will remain neutral until it rises above $1,745 on a closing basis. Beyond that, I’m starting to be positive.
Michael Pearce: Now 50 basis points more likely than 75
There was an increase of 315,000 in nonfarm employment in the United States. Moreover, the unemployment rate came in at 3.7%, above the 3.5% expectation. Michael Pearce, senior US economist at Capital Economics, says these data point to a 50bp smaller rate hike compared to the 75bp increase that markets had expected. The economist explains his views as follows:
Data indicate that labor market conditions are starting to slow down more significantly. It also shows that we expect this to contribute to weaker economic growth in the coming years. Weakening labor market conditions contribute to weaker wage pressures that will help push back the Fed’s recent hawk.
Sean Lusk: Gold likely to drop if it doesn’t hold $1,680
The dollar pulled back in response to the data. This made room for gold to rally. However, analysts are very cautious, especially as we head into the long weekends. Sean Lusk, Walsh Trading co-director, notes:
These long weekends bring many surprises. Everyone goes flat (zero position) to the weekend. Closing the last shorts. However, there is still a lot of uncertainty. The yellow metal is likely to drop if it fails to hold $1,680.
“Gold needs to surpass $1,800 resistance for upside”
Sean Lusk notes that if the US dollar continues to rise and the precious metal breaks down at $1,680, it will open the door to $1,550. The analyst makes the following statement:
I would be really careful here given the long-term outlook for the stock market. I don’t see how gold can sustain a rally with stocks depreciating and the dollar being bought on the decline. If gold’s short-term lows fail to hold and we dip to $1,678, gold could retreat to pandemic lows of $1,625 or even $1,484. Gold should hold $1,670-1,680. If not, it goes lower.
For Lusk to rise above gold, the precious metal must surpass the $1,800 resistance level. “From a seasonal perspective, I’m a little scared here,” the analyst says. Because, he expresses the view that “Golden should have rally been harder in August”. Meanwhile, Lusk notes that some support for gold may come from geopolitical tensions, especially in Eastern Europe. “Given the geopolitical concerns, no one goes home short today,” the analyst says.
“It is possible that gold has more disadvantages”
Frank Cholly states that the $1,695-$1,700 range indicates the long-term value of the market. According to the analyst, if the Fed continues to be too aggressive about rate hikes, the market will likely move lower. The analyst notes that the dollar has received a lot of support from the idea that the Fed will continue to increase interest rates aggressively. Cholly also says the Fed is behind the inflation curve. That’s why she warns that she can overdo it in her gait cycle. The analyst then points out the following levels:
It is possible that gold has more downsides. Longer-term charts show $1,700 to be a good support level. If we do, we’re likely to start looking at $1,600. If we close below $1,695, there is another downside concern at $100.
Next week’s data
- Tuesday: US non-manufacturing ISM data
- Wednesday: BoC rate decision
- Thursday: Fed Chairman Jerome Powell speaks, ECB rate decision, US unemployment data
