Gold at weekly lows ahead of US jobs report

The all-important “NFP day” finally arrives and the market will soon have one of the most important indicators about the health of the world’s largest economy. The marquee employment report should in turn indicate whether a 2015 rate hike is still on the cards, and if so when: September or December? Unless the number comes out miles ahead of expectations, a September rate increase is very unlikely, especially given the recent stock market turmoil and soft patch in global economic data. But the employment report could be a bit of a damp squib, especially as there are no further data scheduled for later in the day and North American investors will be away on Monday in observance of Labour Day. So, the markets need a headline number that will deviate significantly from the expected 215,000 reading. Unfortunately for traders, and perhaps fortunately for the US economy, it looks like the actual number will be around 215,000 as per my colleague Matt Weller’s proprietary NFP model.  

As gold is priced in dollars, the US jobs report could trigger sharp price moves. The precious metal has fallen quite sharply over the past couple of days and this morning it is hovering near the week’s lows around $1225. The metal’s failure to respond meaningfully to heightened stock market volatility suggests that further falls are likely, even if equities drop. But the worst outcome for gold would be if stocks rally and the US jobs report comes out better than expected. Conversely, if the dollar falls back as a result of a disappointing number then gold may find some much-needed support. Still, the likelihood of a sharp rally looks slim.

Gold’s technical outlook remains bearish

Gold’s most recent advance ended last week when price failed to break through the sturdy resistance level around $1170. As a reminder, $1170 is where several technical indicators converged, including a bearish trend line, the 100-day moving average and the 38.2% Fibonacci retracement level of this year’s range.

The fact that the rally has stalled at the relatively-shallow 38.2% Fibonacci retracement level bodes ill for gold bugs as it suggests the bears are still clearly in the driving seat which means therefore that the path of least resistance is to the downside.

Thus from here, it is more likely we will see lower rather higher price levels for gold, unless something changes dramatically about the metal’s still-weak fundamental outlook.

If gold breaks through the $1120/5 resistance-turned-support range decisively, as we anticipate it might, then the next bearish targets could be the 61.8% Fibonacci retracement level of the most recent upswing at $1112/3 followed by $1100.

Some of the longer term technical levels to watch on the downside would be the July low at $1077, followed by the Fibonacci extension levels that are shown on the chart.

On the upside, there are at least three key short-term resistance levels that need to be watched closely. The first is around $1145, which roughly corresponds with this week’s earlier high. Then there is the bearish trend line, and depending on the speed of the potentially rally, this may come in somewhere below $1160, which incidentally also corresponds with the 100-day moving average. Finally, the August high of $1170 is the next key resistance. If the latter breaks down then gold may stage a significant rally as some of the existing sellers will be forced to abandon their positions.