Gold at Risk for Correction Below $1440 - NFPs in Focus

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Gold at Risk for Correction Below $1440- NFPs in Focus

Fundamental Forecast for Gold: Bearish

Gold prices were fractionally weaker on the week with the yellow metal sliding 0.14% to trade $1395 ahead of the New York close on Friday. The decline marks the first weekly loss for gold since July with commodities across the board trading softer this week as the greenback launched a counteroffensive to pare the bulk of the losses seen earlier this month. The final week of August trade saw equities on the defensive as concerns over a possible US military attack on Syria weighed on broader market sentiment. Despite 18% magnitude rally off the June lows however, we begin to look lower near-term as bullion eyes technical resistance with key event risk next week likely to greatly impact gold prices moving into September trade.

Heading into next week all eyes will be fixated on Friday’s highly anticipated non-farm payroll report for an updated assessment on the US labor markets. Consensus estimates are calling for NFPs to show a gain of 180K Jobs in the month of August with the unemployment rate widely expected to hold at 7.4%. With expectations for a “Septaper” continuing to gather pace, a stronger than expected print could further exacerbate expectations for the Fed to begin scaling back from its easing cycle at the September 17-18 meeting. As such look for gold advances to be limited early next week as we head into the Friday data release with a weaker than expecting print risking a rally into key resistance at $1440.

From a technical standpoint, gold achieved textbook tag of technical resistance within the confines of an ascending channel dating back to the yearly lows made back on June 28th. This level came within dollar of a key resistance range between $1440 (100% Fibonacci extension off the June low) and $1452 (88.6% Retracement off the May high) with channel resistance now converging in that range. While we cannot rule-out another attempt at this threshold, we shift our focus lower below this range with a break below $1370 offering further conviction on near-term short side exposure. Such a scenario targets the confluence of channel support and the 38.2% retracement off the 2013 low, currently at $1336. A breach above $1452 invalidates this interpretation and eyes topside targets at $1470, $1488 and the $1500 level. Note that with August trade now in the rearview mirror, we’ll be closely eyeing the September opening range for further clarity on a near-term directional bias. -MB

---Written by Michael Boutros, Currency Strategist with DailyFX

To contact Michael email mboutros@dailyfx.com or follow him on Twitter @MBForex

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