Fundamental Overview
Yesterday, gold broke out of the recent range and extended the rally following some weak US data. In fact, the Continuing Claims rose to a new high and the ISM Services PMI hit a new cycle low. That made the real yields to drop and gold to accelerate to the upside. This has been the case for a couple of years now where a rise in real yields sees a much smaller fall in gold compared to a fall in real yields which triggers a bigger rally.
As of now, it looks like gold have limited downside but lots of upside as inflation abates slowly while risks to the growth picture increase the longer the Fed keeps policy restrictive. In the short-term, strong US data might weigh a bit on the market, but in the long-term weak data is likely to trigger bigger upside moves.
Gold Technical Analysis – Daily Timeframe
On the daily chart, we can see that gold continues to maintain an overall rangebound price action, although the bias remains bullish. From a risk management perspective, the buyers will have a better risk to reward setup around the key 2277 support zone where we can also find the 38.2% Fibonacci retracement level for confluence.
The sellers, on the other hand, will want to see the price breaking below the support to change the bias and increase the bearish bets into the next support around the major trendline, although we will need very strong US data to trigger such a big correction.
Gold Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price yesterday broke out of the recent range between the 2320 support and the 2337 resistance, and extended the rally to the 2360 level as the buyers piled in on the breakout and increase the bullish bets on the weak US data.
If we get a pullback from here, we can expect the buyers to step in around the 2340 level where we can find the confluence of the previous resistance now turned support and the minor trendline. The sellers, on the other hand will need to see the price falling below the 2320 level to turn the bias more bearish and extend the correction into the key 2277 support.
Gold Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price action is now confined in what could turn out to be a bullish flag. A breakout to the upside will likely trigger another extension to the upside with the 2387 level as the target. A breakout to the downside, on the other hand, should provide the pullback into the 2340 level next. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we conclude the week with the US NFP report where the data is expected to show 180K jobs added in June and the Unemployment Rate to remain unchanged at 4.0%.
