The Gold market experience remarkable price action in the previous days, possibly the most volatile action we have seen on daily basis since the previous June. Gold traders may have been enticed by a rather interesting previous week of financial releases but also from the fact that more evidence on the economic circumstances from around the world is currently coming out. In this report we will overview fundamental and technical aspects of the Gold market with the aim of assisting traders with trading decisions.
We commence with Gold’s reaction to the US employment report for July which was released during the previous Friday in a much anticipated sentiment. The US employment report came in much better than expected with figures possibly impressing and motivating traders, something we had expected. The Non-Farm Payrolls figure jumped to 943K, a figure much higher than the previous and the expected one. The unemployment rate dropped by -0.3% to reach a total of 5.4%. In our view, the drop of this figure was specifically appreciated by traders as in the June report it had increased sending negative messages. Yet with the current drop of the unemployment rate, it is now clear that the economy’s recovery is finally reaching hard hit areas with more challenging circumstances. In addition to the NFP and unemployment figure, the Average Earnings yearly rate rose to 4.0% and all together supported the notion for a very positive report for the USD. The greenback moved substantially higher upon release of the figures, a happening that subsequently sent Gold’s price in a considerable selloff momentum. Gold lost approximately $35 in the next hours after the release of the report. Gold’s quality as a safe haven asset as well as a hedge instrument for economic risk may have been disregarded after the specific event, as the selloff was extended into Monday’s Asian session which pushed prices even lower reaching a 4 month low. The question now is how the Fed officials will respond to the news and if they are ready to taper the much written about QE program. We would expected Gold traders to react to the scenario of confirmation for tapering the QE program while a confirmation of a postponement of the tapering may have an equal impact in the opposite direction. We would advise Gold traders to be on the watch for headlines providing such information as volatility and opportunities are most probably to arise. Also, we must note that the US Treasury bond yields were on the rise in the past week as other economic releases from the US also tended to support a positive outlook for the economy.
Looking forward, Gold traders will be focusing on the US inflation rates for July coming up on the 11th of August which seem very enticing at this point. This is another important metric of the economy and this can also affect the Fed’s decisions related to its QE program. Either way, Gold has traditionally been used as a countermeasure for inflation fluctuations and in our opinion can come under noteworthy volatility when the numbers are released. Also on the 11th of August we get speeches from Fed officials such as Raphael Bostic and Esther George. On the 12th of August we get the weekly Initial Jobless claims figure which will also be closely watched, while on the 13th of August we get the Preliminary University of Michigan Consumer Sentiment for August. In the next week the US Retail Sales and the Industrial Production figure are both to be released on the 17th of August forming another interesting day for Gold traders. Finally, on the 18th of August the FOMC meeting minutes are to be released.
As for August which is considered a quiet month with most of the world on holiday, the previous days have shown that such comments maybe unjustified at this stage leaving the door open for more to come in the following days.
Technical Analysis
XAU/USD H4
After the extensive selloff performed in the previous days, gold is now trading at levels previously seen in April just between our (R1) 1742.80 resistance and our (S1) 1724.80 support. If the metal is to make a rebound to attend higher grounds above the (R1) then the (R2) 1756.50 line could be the first target for the bulls. The (R2) in our opinion represents a great challenge for the bulls as it would lift the metal back to levels previously seen in June, leading us into the assumption that more action toward this direction is to follow. At the top we have placed the (R3) 1775.00 as our highest resistance for this report. In case of a continuous selling scenario then below the (S1) we have placed the (S2) 1710.45 support while our lowest line for this analysis is currently the (S3) 1695. Please note the RSI indicator below our chart remains at the 25 level but has confirmed some buybacks for the time being with a slightly ascending trendline. Yet the heavily oversold trend seems to affect Gold even days after the NFP keeping it in a selling run.
Disclaimer:
This information is not considered as investment advice or an investment re commendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.
