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Gold Talking Points

Gold pares the weakness following the U.S. Non-Farm Payrolls (NFP) report amid waning bets for a Federal Reserve rate-hike, and the price for bullion may continue to catch a bid over the coming days as the Relative Strength Index (RSI) clings to the bullish formation carried over from November.

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Gold Prices Pare Post-NFP Losses, RSI Clings to Bullish Formation

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The June-high ($1309) remains on the radar for gold as Federal Reserve Chairman Jerome Powell warns that the central bank is ‘always prepared to shift the stance of policy and to shift it significantly if necessary,’ and the comments suggest the Federal Open Market Committee (FOMC) is nearing the end of the hiking-cycle as officials lower their economic forecast for 2019.

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Fed Fund Futures continue to show little expectations for higher U.S. interest rates, with the central bank anticipated to stay on hold throughout the first-half of the year, and a growing number of Fed officials may adopt a less-hawkish tone ahead of the next rate decision on January 30 as Chairman Powell & Co. ‘see growth moderating ahead.’ At the same time, theFOMC may come under pressure to slowdown the balance-sheet adjustment as the quantitative tightening (QT) drags on risk-taking behavior, but the weakening outlook for the world economy seems to be spurring a flight to safetyas global equity prices remain battered, while precious metals catch a bid.

In turn, gold should continue to benefit from the current environment amid diminishing bets for an higher U.S. interest rates,but the pickup in volatility appears to be spurring a change in retail sentiment as traders fade the recent strength in bullion.

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The IG Client Sentiment Report shows 70.8% of traders are now net-long gold compared 73.7% last week, with the ratio of traders long to short at 2.42 to 1.The percentage of traders net-long is now its lowest since September 03 when gold traded near $1200.The number of traders net-long is 1.4% higher than yesterday and 0.2% higher from last week, while the number of traders net-short is 29.4% higher than yesterday and 11.3% higher from last week.

The near-term recovery in gold may fuel a broader shift in market behavior as the retail crowd responds by boosting their net-short exposure, and the recent developments keep the topside targets on the radar as both price and the Relative Strength Index (RSI) continue to track the bullish formations carried over from late-2018. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Gold Daily Chart

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  • The near-term advance in gold appears to be stalling around the $1298 (23.6% retracement) to $1302 (50% retracement) region as the precious metal snaps the series of higher highs & lows from earlier this month, but the June-high ($1309) remains on the radar as the RSI attempts to push back into overbought territory.
  • Still need a break/close above $1298 (23.6% retracement) to $1302 (50% retracement) to open up the topside targets, with the next region of interest coming in around $1315 (23.6% retracement) followed by the $1328 (50% expansion) area.

For more in-depth analysis, check out the 1Q 2019 Forecast for Gold

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.