Fundamental Forecast for Gold: Neutral
Gold prices inched higher this week with the precious metal nudging up nearly 0.5% ahead of the New York lose on Friday. The gains come amid continued volatility in broader markets with all three major U.S. equity indices poised to close lower on the week. For gold, this volatility may keep a floor under prices as risk sentiment begins to deteriorate.
U.S. Non-Farm payrolls showed a gain of just 103K jobs for the month of March with 50K downward revision to the two-month net payroll count. Although unemployment rate held steady at 4.1% (expectations were for a down-tick to 4.0%) the labor force participation rate fell to 62.9% and further highlights the overall weaker tone of the report.
With the unemployment rate at-or-near the central bank’s “natural” longer-running rate, this week’s developments do not change the broader outlook for Fed policy moving forward. Heading into next week however, traders will be eyeing the release of U.S. CPI (Consumer Price Index) and minutes from the latest FOMC policy meeting.
The NFP disappointment adds to mounting concerns regarding the growing threat of a trade war as rhetoric between the Trump administration and China continues to heat up. Traders found solace in the perceived safety of gold with prices reversing sharply off the weekly lows on Friday. But does this mean the correction off the March highs is over? The technicals suggest we’re not out of the woods just yet.
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- A summary of IG Client Sentimentshows traders are net-long Gold – the ratio stands at +2.67 (72.8% of traders are long)- bearishreading
- Long positions are 0.1% higher than yesterday and 0.7% higher from last week
- Short positions are4.5% lower than yesterday and 8.4% lower from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger Spot Gold-bearish contrarian trading bias from a sentiment standpoint.
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Gold prices have largely continued to trade within the January range with price holding this descending channel formation off the yearly highs. Daily momentum has failed to offer any guidance here and the focus is on immediate support at 1316 and the yearly high-day reversal close at 1348. We need to clear this range to get clarity on our medium-term outlook.
Broadly speaking, price continue to trade within the confines of a multi-year upslope and keeps the long-term outlook constructive while above 1295. A topside breach of this formation targets 1366 backed by 1378/79.
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Gold 240min Price Chart
A closer look at gold price action sees the early week advance turning sharply from parallel resistance of the slope line extending off the February highs. Interim support objectives rest at the March low-day close at 1316 backed by 1312 where the 100% extension converges on the 100-day moving average. We’ll be looking for an exhaustion low into one of these levels IF price is heading higher. Resistance stands with the upper parallel ~1342 backed by 1348 with a breach above 1355/56 needed to mark resumption of the broader uptrend.
Bottom line: Look for another low next week towards 1316 & 1312 for possible exhaustion with a breach above this near-term slope needed shift the immediate focus higher.
—Written by Michael Boutros, Currency Strategist with DailyFX