August Comex Gold futures closed lower on Friday in reaction to the firmer U.S. Dollar. The dollar was supported by higher Treasury yields which rose in response to a stronger-than-expected U.S. Non-Farm Payrolls report.
The headline number soundly beat the forecast, the unemployment rate inched higher, and hourly wages lagged. Nonetheless, investors felt the data was strong enough to support the Fed’s plan to raise rates at least one more time before the end of the year. Current Fed Funds futures data from the CME indicates investors are betting the Fed will raise rates in December.
Traditional analysis shows that gold is bearish because of rising interest rates. Gold is a dollar-denominated asset so when the dollar rises, gold becomes more expensive to foreign investors. This lower demands.
The wildcard, or the reason gold could rally is the situation in North Korea. If it escalates enough to trigger a sharp break in the stock market then gold could rally due to short-covering and flight-to-safety buying. Treasury yields would also fall if this occurred.
Technical Analysis
The main trend is down according to the daily swing chart. The main trend will turn up on a trade through $1260.00. However, the market is in the window of time for a potentially bullish closing price reversal bottom. This chart pattern would likely occur if there was surprise news.
The minor trend is also down. It will turn up on a trade through $1229.50.
The next major downside target is the March 10 bottom at $1201.40.
The major range is the December 15, 2016 main bottom at $1133.30 to the April 17, 2017 top at $1300.30 main top. Its retracement zone is $1216.80 to $1197.10. Gold closed inside this zone so I wouldn’t be surprised if aggressive counter-trend buyers and value-seekers started to come into play. It’s also a profit-target so we could see a few of the shorts start exiting positions.
Forecast
Based on Friday’s close at $1209.70, the direction of the gold market on Monday is likely to be determined by trader reaction to the long-term downtrending angle at $1206.80.
A sustained move over $1206.80 will indicate the presence of buyers. If this creates enough upside momentum then look for a possible test of the major 50% level at $1216.80. This is followed by the short-term downtrending angle at $1220.00.
A sustained move under $1206.80 will signal the presence of sellers. The first target is a long-term uptrending angle from the $1133.30 main bottom at $1203.30 today. This is followed by the long-term main bottom at $1201.40. The next major target is the Fibonacci level at $1197.10.