3 August, 2016
The spot price for gold is up 4.06% from 1313.77 on 26th July to 1367.16 on 2nd August, a three week high. There have been several factors providing a lift for gold prices.
Firstly, the recent weakening of the dollar gives rise to the increase of gold prices. Last Wednesday, the Fed kept rates unchanged as the US economy was not solid enough for a rate hike. Furthermore, the US QoQ GDP figure released last Friday underperformed. Consequently, the market consensus was that Fed will not raise interest rates by the end of this year. As a result, the dollar future index plunged 2.25% from 97.515 on Wed 27th July to 95.325 on Fri 29th July. The bearish trend of the dollar provides a cushion for gold prices.
Secondly, monetary easing from other central banks also bolster gold prices. The Reserve Bank of Australia cut rates to a record low of 1.5% on 2nd August. Also markets expect that the Bank of England might announce a rate cut along with a stimulus package this coming Thursday. Loose monetary policies resulted in many investors turning to safe havens like gold in order to secure asset values from currency weakening and rise of inflation, pushing gold prices up.
The current gold spot price is trading around 1364, which is close to the previous high at 1375 on 6th and 11th July, forming a double top pattern, indicating heavy profit-taking and selling pressure at the top.
The US non-farm payroll data will be released on Friday, which will be the key driver for the near term trend of the dollar. If the figure outperforms, the dollar will strengthen, the gold prices will fall. By contrast, if the figure underperforms, the dollar will drop further, the gold prices will continue to be bullish.
Before the non farm payroll figure is released, gold price will be likely keeping on oscillating in the uptrend channel. On the 4 hourly chart, the price is above all the EMAs (exponential moving averages), consecutive long bullish candles show a clear bullish trend. Yet The upside selling pressure at 1375 is heavy, also CCI indicator (Commodity Channel Index) shows a divergence from the price, indicating that the momentum is waning. Be aware of a pullback in the price zone between 1360-75.
The first upside resistance is the intra-day high yesterday at 1367. The second resistance is the uptrend line resistance at 1371.5. The third resistance is the significant level of previous highs on 6th & 11th July at 1375 followed by another major resistance at 1400.
Downside support zone is between 1350-60, followed by the 23.6% post-referendum Fibonacci retracement at 1345.
The ADP Non Farm Employment Change will be released at 13:15 GMT, which is regarded as a predictor of the government’s non-farm payroll data on Friday 5th August. Keeping an eye on the trend of the dollar future index before the release of non farm payroll on Friday.
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