This website uses cookies to provide you with full functionality and the best possible user experience. By continuing to use this website you agree to our cookies policy. Find out more. Close

Gold Approaches Key Levels Ahead of FOMC, NFP

by Fawad Razaqzada

Precious metals started the new trading week and month lower yesterday after falling in the last two weeks of April. Both metals were trading lower again at the time of this writing; gold was trading around $1255 and silver $16.80 per troy ounce. During the last couple of weeks of April, the Dollar Index also fell, chiefly due to a sharp rally in the EUR/USD and GBP/USD currency pairs. The euro rose on the back of a market-friendly outcome of the French first round elections, while the pound strengthened after the UK Prime Minister Teresa May called a snap general election. So, the Dollar Index’s weakness in the past couple of weeks or so hasn’t been because of the greenback itself. If anything, the US dollar has risen sharply against the Japanese yen and commodity currencies. Thus, gold’s weakness cannot be entirely due the US dollar, because the latter has been trading mixed. Therefore, it must be due to the on-going “risk-on” trade, with US and some European equity markets being at or near record high levels. This has reduced the appeal of safe haven gold. But as we start to move towards the summer months, equity markets may become less buoyant due above all to seasonality factors. This could underpin safe haven assets like gold and silver. In the very near-term, Wednesday’s policy statement from the Fed and then the US monthly jobs report on Friday should provide the next catalyst for gold.

Given the recent weakness, we are now on the lookout for bullish price patterns to emerge on the charts of gold and silver, while on the indices we are watching for bearish price patterns to potentially unfold, although both scenarios need not line up this way for gold to make a comeback. At the moment though, there isn’t a lot that can be said about gold though we do think that the long-term price action since the end of 2015 has been bullish. We also like the fact that the long-term 55-week moving average is now trending higher while the 200-week moving average has flattened and is no longer falling. The moving averages tell us objectively that the long-term trend is no longer bearish. However, gold is yet to break down its long-term bearish trend line, which again held in early April. As a result, we have seen a sharp unwinding of the long positions that had been accumulated since December 2016 and again in March.

But as can be seen on the daily chart of gold, the precious metal has entered a key support region between $1248 and $1256. This area was previously resistance, so it may turn into support now that it is being re-tested. In addition, both the 50- and 200-day moving averages come into play here. A reversal-looking daily candlestick price patterns here is what the bulls are hoping to see here. The bears meanwhile will need to see a swift break down. If that were to happen then we may see some further follow-up technical selling towards the support and/or Fibonacci levels shown on the chart, starting at $1229/30 (38.2%).

fawad-razaqzada-gold-2017-05-02 fawad-razaqzada-gold-daily-2017-05-02

From time to time, 2021 StoneX Financial Ltd’s (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

Don't have an account?

Got some trading ideas?

Make the most of any trading opportunity

Log in and Trade

Contact us: