Gold Bias Unchanged by Fed, NFP- Late April Rally at Risk Sub $1504
Fundamental Forecast for Gold: Bearish
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Gold posted a modest advance of 0.20% this week to trade around $1465 in New York on Friday. The week was largely marked by consolidation in gold with prices holding just below the key resistance range noted last week at $1470-$1483. As such, our broader bias remains weighted to the downside below $1504 with economic developments this week throwing a curve ball at the fundamental forecast.
The FOMC and ECB interest rate decisions along with Friday's non-farm payroll print were mixed for gold and although they offered little to warrant a shift in the broader bias, the short-term implications for gold remain clouded. The Fed policy statement was largely unchanged although a change in the language did emphasize that the committee remains, "prepared to increase or reduce" the size of its asset purchases accordingly to changes in economic conditions- the first indications that the central bank was still willing to step on the gas with more QE. The following day, the ECB interest rate decision saw ECB President Mario Draghi present the notion of negative interest rates in Europe, which once again propped up gold prices.
Friday's NFP print rejected gold's rally however, with a stronger than expected print of 165K for the month of April unexpectedly pushing the headline unemployment rate down to a four year low at 7.5%. More importantly, we did see improvement in the participation rate (which held at 63.3%) as the civilian labor force added 210K workers. Strong upward revisions to last month's dismal print further brightened the tone with equities in the US and Europe rallying to fresh highs. As employment data continues to improve, the argument for an increase in Fed easing will be difficult to support and it's likely that the central bank will maintain its current policy stance into at least 4Q. As such, gold is unlikely to catch a substantial bid and the technical damage done from last month's decline is unlikely to have run its course yet.
Bullion continued to test the key resistance range between $1470 and $1482 this week with Friday's brief break and pullback sub $1470 suggesting that this level remains paramount for the precious metal. In any event, we will maintain our outlook so long as the $1504 barrier is respected (61.8% retracement from the decline off the March high) with a break of this range risking a run on the $1550-55 pivot mark. Targeted near-term support rests between $1424-$1434 with a break here eyeing objectives at $1385 and $1302-$1307. -MB
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