After breaching the crucial psychological support level of $1900 last week, gold has faced a significant downturn. Currently, it has found support around the $1820 mark and is in an oversold condition. This downtrend is not limited to gold; silver is also in an oversold region. While the majority of the correction appears to be complete, there might be a bit more downward movement if the Non-Farm Payroll data, released today, exceeds expectations.
The key Non-Farm Payrolls figure is anticipated to be around 170,000, compared to a previous rise of 187,000 in the September report. The recent disappointing ADP jobs report has heightened concerns that the more critical jobs report today could also underperform.
Gold prices have tumbled more than 11% from their May peak of over $2,000 per ounce, primarily due to the Federal Reserve’s hawkish stance, which has driven long-term bond yields to their highest levels in 16 years. Unfortunately, a robust gold rally in the near term seems unlikely as the Fed’s potential for further action is expected to keep a lid on gold prices. However, looking ahead to 2024, there is optimism that prices will start to rise. While some Fed members may advocate for one more rate hike, the prevailing view is that the Fed has concluded its rate hikes. With factors such as the resumption of student loan repayments, a slowdown in real household disposable income, and the possibility of Fed rate cuts before August 2024, there could be a positive impact on gold and silver.
The recent weakness in gold can be attributed to the surge in the US Dollar and Treasury yields. However, over the last two trading sessions, the US Dollar has retraced, and US 10 and 30-year Treasury yields have also pulled back. Despite these developments, gold has struggled to recover and has now seen nine consecutive days of lower closes. This indicates that despite some relief in the USD and bond yields, traders remain cautious about taking long positions in gold, largely due to today’s crucial US employment data. If the data comes in below expectations, we may see some long positions being initiated as traders gain more confidence. Additionally, the Federal Reserve’s commitment to keeping rates higher for a longer duration is influencing traders to stay away from long positions in gold. According to the CME’s FedWatch tool, there is only a 19.6% probability that the Federal Reserve will raise its benchmark rate at the November FOMC meeting, with a slightly higher probability of 29.4% for a rate hike in December.
From a technical perspective, MCX Gold is in an oversold condition, with the RSI_14 trading at 25. Historically, reversals have occurred around this RSI level. The employment data released today is of utmost importance, and if it favors gold with negative data, it could present an opportunity to go long. The risk-reward ratio does not favor further short positions from this point. For those with existing short positions, booking profits is advisable, and a recommendation to go long is in the range of 56,000-55,500 with an expected target of 57,500 and a stop loss of 55,200.
