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Gold at 11-Week Lows Post NFP, Risks Further Losses on US Optimism

Fundamental Forecast for Gold:Neutral

Gold prices tumbled for a third consecutive week with the precious metal off by another 1.8% to trade at $1169 ahead of the New York close on Friday. The sell-off in gold has been exacerbated by a rebound in the greenback with the Dow Jones U.S. Dollar Index (Ticker:USDOLLAR) recouping sharp losses from earlier in the session to close just pips higher on the week. With the Labor Market recovery continuing to gather pace, expectations for higher interest rates have kept bullion under pressure with prices closing the week just above key near-term support.

The 280K expansion in U.S. Nonfarm Payrolls triggered fresh 11-week lows in gold and the precious metal remains at a risk for a further decline next week as market participants look for a rebound in household consumption. Advanced retail sales are projected to rebound to 1.2% after holding flat the previous month and meaningful pickup may boost Fed interest rate expectations as Janet Yellen & Co. remain on course to normalize monetary policy in 2015. With that said, the bearish sentiment surrounding gold may gather pace ahead of the Fed’s June 17 rate decision should the data prints paint an improved outlook for growth and inflation with stronger data to further support the case fora higher interest.

From a technical standpoint, gold broke below trendline support dating back to the 2015 low on Wednesday with the break charging a decline into targets noted last week at 1176 & 1164 (stretch low was 1162). Prices have continued to hold within the confines of a well-defined descending pitchfork formation with Friday’s NFP decline taking the through the ML. We could get a near-term bounce early next week as RSI holds-40 into the close of the session but the broader focus remains weighted to the short-side while within this formation with a breach above 1179/80 invalidating our near-term bias. Such a scenario targets resistance objectives into the broader MLP off the yearly highs at ~1194/95. Key near-term support rests at 1163/64 where the 61.8% extension of the decline off the May highs converges on the 76.4% retracement off the advance off the March low. A break below this level targets key support into the November 2014 TL support / 1150/51.