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Gold Talking Points

Gold prices are back under pressure as fresh updates to the U.S. Non-Farm Payrolls (NFP) report boost bets for higher interest rates, and the precious metal may continue to lose ground ahead of Fed meeting on tap for later this month as the central bank is widely expected to raise the benchmark interest rate to a fresh threshold of 2.00% to 2.25%.

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Gold Rebound Fizzles Amid Upbeat U.S. Non-Farm Payrolls (NFP) Report

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The rebound from the 2018-low ($1160) continues to unravel as the U.S. economy adds 201K jobs in August, with Average Hourly Earnings unexpectedly climbing to 2.9% from 2.7% the month prior, and signs of a more robust labor market may encourage the Federal Open Market Committee (FOMC) to implement a hawkish rate-hike on September 26 as the central bank largely achieves to its dual mandate for full-employment and price stability.

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The FOMC may continue to prepare U.S. households and businesses for higher borrowing-costs as ‘members expected that further gradual increases in the target range for the federal funds rate would be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term,’ but market participants may put increased emphasis on the Fed’s Summary of Economic Projections (SEP) as Chairman Jerome Powellsees a limited threat for above-target inflation.

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Until then, gold remains vulnerable to further losses as the inverse relationship between the precious metal and the greenback continues to take shape, with the IG Client Sentiment Report still showing retail sentiment near extremes as 83.1% of traders remain net-long bullion. The ratio of traders long to short sits at 4.93 to 1 as the number of traders net-long is 0.1% lower than yesterday and 0.1% higher from last week, while the number of traders net-short is 9.7% lower than yesterday and 9.4% lower from last week.

The persistent skew in retail positioning offers a contrarian view to crowd sentiment, with recent price action warning of a further decline in gold as both price and the Relative Strength Index (RSI) snap the bullish formations carried over from the previous month.

Gold Daily Chart

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  • Downside targets are coming back on the radar following the failed attempt to test the August-high ($1225), with the lack of momentum to push back above the $1210 (50% retracement) to $1219 (61.8% retracement) area raising the risk for a move back towards 1172 (61.8% retracement) to $1177 (78.6% retracement).
  • Need a break/close below the Fibonacci overlap to bring up the 2018-low ($1160), which sits just above the $1156 (61.8% retracement) hurdle.

For more in-depth analysis, check out the Q3 Forecast for Gold

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.