Gold rebounds after NFP plunge
James Chen August 7, 2015 11:01 PM
<p>After plunging to a session low around 1082 on Friday morning as solid US employment data prompted an initial surge in the US dollar, gold […]</p>
After plunging to a session low around 1082 on Friday morning as solid US employment data prompted an initial surge in the US dollar, gold rebounded off its lows by the afternoon session as the dollar pared its morning gains.
Despite this rebound, the precious metal was still potentially on course to complete its seventh consecutive losing week as global demand for gold has waned and the US dollar has strengthened persistently due to expectations that the Fed is edging closer to increasing interest rates for the first time since 2006. As a dollar-denominated commodity, gold prices have a strong inverse correlation with the US dollar.
This gold rebound on Friday afternoon occurred as the dollar reversed course after advancing on non-farm payrolls data and resulting implications for a September rate hike, and the US equity markets continued to fall.
While the rebound from today’s lows provided some relief to gold bulls, the likelihood of a recovery in gold prices remains low, as investors continue to be hard-pressed to find compelling reasons to buy, especially in light of the potential near-term trajectory of the US dollar.
From a technical perspective, gold continues to trade within a prolonged consolidation pattern just off its new five-year low of 1077 that was established in late July. This consolidation has formed a classic inverted pennant formation that may serve as a bearish trend continuation pattern if broken to the downside.
In the event that this pennant pattern is unable to hold, a breakdown could send the price of gold tumbling down to the next major support levels at 1045 and then 1000, which is both an important psychological level as well as the 261.8% Fibonacci extension of the latest rebound from this past March to May.
To the upside, any significant oversold bounce from the current support may invalidate the pennant pattern, but should be limited to the upside by the 1142 prior support level, which may now be considered a major resistance level.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.