Gold Trades Heavy on Strong NFPs – $1181 Still Key Support
Fundamental Forecast for Gold: Neutral
- Gold Deeper Setback Would Present Opportunity
- Price & Time: Capitulation or Just a Minor Correction in Gold?
- Gold: $1181 Paramount for Bulls- Muted Recovery Ahead of U.S. NFPs
Gold prices were lower this week with the precious metal off by 1.59% to trade at $1215 at the close of trade in New York on Friday. The gold trade has remained marred by persistent strength in the U.S. Dollar and renewed expectations that the Fed will begin QE tapering later this year. Stronger than expected prints on ISM manufacturing, factory orders, ADP employment and weekly jobless claims earlier in the week offered a climactic build up to Friday's highly anticipated NFP report with gold posting a 2.8% decline on the back of the data print.
Non-farm payroll figures released on Friday topped expectations with a print of 195K jobs for the month of June while the headline unemployment rate held steady at 7.6%. Although consensus estimates had called of a down-tick to 7.5%, a closer look at the data showed the addition of some 177K workers to the civilian labor force, bringing the participation rate up to 63.5% from 63.4% a month earlier. The data bodes well for the broader labor market and further fueled expectations for Fed tapering possibly as early as September. The reaction sparked widespread demand for the greenback at the expense of gold which saw the largest move of the week on Friday. As the US data continues to improve it will be difficult for gold to stage a lasting rally with advances in the greenback limiting the topside potential for the yellow metal.
Heading into next week, traders will be closely eyeing the release of the minutes from the last FOMC policy meeting. Should the minutes reflect a growing bias among committee members to begin tapering back QE installments, look for gold to remain under pressure with a break below the $1181 threshold risking substantial losses for bullion. However, with the BoE and ECB's recent commitment to maintain the current accommodative policy for the foreseeable future, gold losses may start to wane as the decline takes the metal into very attractive levels for longer-term gold bulls.
From a technical standpoint, the decline this week encountered support at the 61.8% retracement off the late-June advance at $1213, with prices closing just above this level. The close below the preliminary July opening range does keep a bearish near-term bias but only a move past the June lows would validate this notion with such a scenario eyeing a key support targets at $1151- $1160, $1125 and $1091. Note that the daily relative strength index is now poised for a reaction off the 30-threshold early next week and should offer further clarity on a near-term directional bias. Although our broader outlook on gold remains bearish, we maintain a nimble approach here as the monthly and quarterly opening range is set and note that a break above $1269 would suggest a larger correction is underway. -MB