Fundamental Forecast for Gold:Neutral
Gold Bounces from Long Term Downtrend Support Line
Gold Prices Likely to Fall Further
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Gold prices snapped a six-week losing streak on Friday with the precious metal rallying 2.55% to trade at 1084 ahead of the New York close. The advance comes on the back of strong US employment data with a breakdown in the greenback also helping supporting the beaten down metal.
The release of the November US Non-Farm Payrolls report on Friday sparked the bulk of this week’s advance with prices rallying alongside the U.S. Dollar & equities into the close. An unexpected uptick in the labor force participation and upward revisions to last month’s stellar print leaves the stage set for a Fed liftoff later this month. Looking ahead to next week, investors will be looking for US data to continue to meet market expectations with Retail Sales & the University of Michigan Confidence surveys on tap next week.
So why did gold rally so ferociously? Keep in mind the short-side has been a crowded trade as of late. As highlighted in this week’s CoT report (Commitments of Traders), the difference between net speculative positioning and net commercial positioning has never been lower with the last few pullbacks into this territory marking key lows in price. Bottom line, the blow-off on a trade like this could linger for some time and the near-term focus is on confluence resistance just higher.
From a technical standpoint, gold prices came into key support early in the week at the 61.8% extension of the decline off the 2012 high at 1053 with the rebound looking to set an outside weekly reversal candle. The advance marks the largest daily range & single day advance since the October 2nd outside-day reversal which inevitable fueled a rally into 3 ½ month highs. Note that daily & weekly momentum profiles have marked strong bullish divergence into these lows, suggesting the near-term risk remains weighted to the topside.
Key resistance stands at 1098-1101 where a TL resistance pivot extending off yearly high converges on the 38.2% retracement of the October decline & the July low-week close. This region represents broader downtrend resistance and a breach above would be needed to validate a larger-scale reversal targeting subsequent objectives at 118 and the 61.8% retracement at 136. A break of the lows eyes support targets at 1044 (2010 low) and more significant Fibonacci confluence at 975/80.
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Source: Daily fx
