Gold Eyes Key Support as Blowout GDP/NFPs Fuel USD Rally
Fundamental Forecast for Gold:Bearish
- Gold Engulfs Prior 4 Days; 1327-34 Seen as Impediment to Gains
- Commodities: Crude Oil, Gold Look to US Jobs Data for Direction
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Gold prices plummeted again this week with the precious metal off by nearly 2.3% to trade at $1285 ahead of the New York close on Friday. The losses come on the back of a jam packed week of economic data prints and central bank rate decisions that fueled a broad based rally in the greenback against most of its major counterparts and gold. But with bullion prices now down five of the past six sessions, has the decline gone too far? The technicals suggest not.
Event risk for the week culminated on Thursday and Friday with the US 3Q GDP and NFP print, both of which crushed consensus estimates. The US economy grew by at an annualized rate of 2.8% q/q in the third quarter, topping excitations for a read of just 2.0%, and up from a previous print of 2.5% in the second quarter. The release came on the heels of the European Central Bank rate decision where President Mario Draghi unexpectedly cut the benchmark interest rate from by 25 basis points to a record low of 0.25%. Gold initially posted a rally to test the November highs before the GDP print prompted a rush into the greenback at the expense of yellow metal.
The non-farm payrolls report on Friday was the highlight of the week with the report showing the addition of 204K jobs in October, far surpassing the expectations for a meager 120K print. Upward revisions to the September read further supported the dollar rally as market participants began to pricing in expectations for a possible Fed taper in the coming months. Although the headline data was extremely strong, it’s important to note that the unemployment rate did rise to 7.3% from 7.2% despite a massive 720K decline in the civilian labor pool that brought the participation rate to its lowest levels since 1979 at 62.8%. As such, it’s unlikely that central bank will look to alter policy on this labor market report, but does put added emphasis on the November read which will be released ahead of the FOMC meeting next month.
The economic docket lightens up next week with only a hand full of metrics to note: Trade balance data on Thursday and Empire Manufacturing & Industrial Production figures on Friday. We will look to broader market sentiment and the greenback for conviction as the USDOLLAR approaches key resistance at 10,581- 10,604.
From a technical standpoint, gold has now broken below the 61.8% retracement of the advance off of the October lows at $1293 and we continue to eye the $1269-$1277 support objective for guidance as we move deeper into November trade. A break below this mark risks further losses with key support targets seen lower at $1233, $1209 and the yearly low at $1180. Note that daily RSI has now broken below a trendline support trigger and suggests that the near-term shift in momentum is to be respected. As such, we will maintain a bearish bias below $1327 (November opening range high) with only a breach above $1364 invalidating the broader decline off the August highs.
---Written by Michael Boutros, Currency Strategist with DailyFX
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