Gold is currently trending downwards after breaking the upward trend that began in November. Following a period of sideways movement, the downward pressure appears to be mounting. The decline can be attributed to decreasing recession risks, as evidenced by the much stronger-than-expected first quarter US GDP, and the Federal Reserve’s recent hawkish dot plot.
In terms of downside movements, the key support to monitor is at 1892, which corresponds to the Fibonacci 38.2% level. If this support is breached, there is a possibility that the price could reach the 233-day moving average in the coming days, potentially prior to the next Federal Open Market Committee (FOMC) meeting, depending on the Consumer Price Index (CPI) data.
Regarding upward movements, resistance levels to watch for now are at 1937 and 1957.
Another reason, although highly correlated with the others, is that the 10-year rate is experiencing another surge above 4%. The previous downtrend has been broken, and yesterday the markets witnessed a close above 4%. The upcoming weekly close could prove crucial for future movements. Additionally, increasing odds of Fed rate hikes and new issuances from the Treasury to replenish depleted coffers due to debt limit discussions are putting pressure on the bond markets.
Total ETF gold holdings have also begun to decline since the beginning of June. The rise in real bond rates, along with new issuances and the resurgence of stock markets, is once again diverting attention away from gold, at least in the short to medium term. However, it is worth noting that total gold holdings in ETFs remain historically high. If gold is to make a recovery, traders should expect to see some signs of recovery in the holdings beforehand.
So, we have a strong ADP report and some downward pressure from the fundamentals. Does this make a short position a sure thing for NFP? Unfortunately, it does not. Following the robust ADP data, the actual market expectation for today’s nonfarm payrolls data may have exceeded the analyst surveys. A slightly higher nonfarm payrolls figure might not be sufficient to trigger a significant downward movement. Moreover, over the past year, the nonfarm payrolls data has consistently exceeded survey expectations. Therefore, a negative surprise could potentially impact the markets more significantly than a positive surprise.
Looking at the past year, after the 6-hour period following the release of nonfarm payrolls data, gold has risen in five out of twelve instances despite the data being a positive surprise in all of them, while it has fallen seven times. The average movement has been a negative nearly 0.055%. Upward or downward moves have generally stayed within the range of plus or minus 2%, except for the February data. In the last two instances of nonfarm payrolls data, gold experienced declines of 0.934% and 1.404% respectively. For a clear signal, those bearish on gold should watch for data higher or closer to the previous figures, while those bullish on gold should look for data much lower than expected. Otherwise, price swings may be somewhat choppy.
