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Gold Holds Support Post NFPs- Bearish Sub $1282

Fundamental Forecast for Gold:Bearish

Gold prices are softer this week with the precious metal off by 1.57% to trade at $1266 ahead of the New York close on Friday. The losses pushed the yellow metal to eleven-week lows as persistent strength in the greenback and broader equity markets have continued to weigh on demand. As we head into the second week of September trade, key support for gold comes into view just lower as the USDOLLAR struggles at the 2014 highs- the risk of a near-term pullback begins to mount as our focus turns to the monthly opening ranges.

US employment data disappointed on Friday with the August Non-Farm Payrolls report grossly missing consensus estimates with a print of just 134K. Although the unemployment rate did fall to 6.1% from 6.2% as expected, another downtick in labor force participation took the rate back to the 1978 lows seen early this year at 62.8%. Despite the uptick in wage growth, recent comments from FOMC voting members Richard Fisher, Narayana Kocherlakota and Jerome Powell suggest that the low inflation environment will be the key focus in determining the timing and magnitude of the normalization cycle. As such, the Federal Reserve is likely to retain its zero interest rate policy throughout the remainder of 2014 and Friday’s release will be likely seen as a one-off event.

Looking ahead to next week, the US economic docket will be rather light with only Whole sale inventories, retail sales and the preliminary University of Michigan confidence surveys on tap. The most significant risks to the upside near-term in gold would be escalating geopolitical tensions both in the Europe and the Middle East and/or a broader correction lower in equirty prices. That said, keep a close eye on the Dow Jones FXCM US Dollar Index (Ticker:USDOLLAR) as it looks to close the week just below key resistance at 10,765 with a pullback in the greenback likely to offer more favorable short entries in gold higher up.

From a technical standpoint, the outlook for gold remains weighted to the downside while below $1282 with only a breach above the initial September opening range high and key resistance at $1292 shifting our focus back to the long-side off the trade. Support stands at the 100% Fibonacci extension taken from the decline off the July highs at $1258 and is backed by the 61.8% extension off the 20104 highs at $251. Note that operative channel support converges on this $7 range over the next few days and a break below this threshold could see accelerated losses for gold into the May lows and beyond. That said, we’ll look for a definitive break of the September opening range and price action in the USD for guidance with our broader bias favoring selling rallies sub-1282.