Gold prices have seen a significant drop of more than 11% from their May highs of over $2,000 per ounce. This decline has been driven by the Federal Reserve’s hawkish stance, which has led to a surge in long-term bond yields, reaching their highest levels in 16 years. Gold faced a critical moment when it breached the psychological support level of $1,900. Currently, it has found support around $1,820 and is now considered oversold. Silver has followed a similar pattern of overselling, and it’s believed that most of the correction has already taken place. However, the upcoming Non-Farm Payroll data release may introduce further correction if the results exceed expectations.
Non-Farm Payroll Data Expectations
The key Non-Farm Payroll figure is anticipated to show an increase of 170,000 jobs, compared to a rise of 187,000 in the previous September report. A recent disappointment in the ADP jobs report has raised concerns that Friday’s more crucial employment report may also underperform.
Gold’s Prospects Moving Forward
Despite the current oversold conditions and the potential for a rebound, a strong rally in gold is not expected in the near term. The Federal Reserve’s threat of further action will likely continue to constrain gold prices. However, there is optimism that prices will begin to rise in 2024. While some Fed members may favor one more rate hike, there is a belief that the Fed has completed its rate hikes. With factors such as student loan repayment resuming and real household disposable income slowing, the Fed may consider rate cuts before August 2024, which could positively impact gold and silver.
Technical Analysis and Trading Recommendations
From a technical perspective, MCX Gold is currently in an oversold region with an RSI_14 indicator at 25. Historically, reversals have occurred around this zone. The upcoming employment data is crucial, and a negative outcome for gold could present a favorable opportunity to go long. The risk/reward ratio does not favor short positions at this point. Traders holding short positions may consider booking profits, and it is recommended to consider going long around the range of 56,000-55,500 with an expected target of 57,500 and a stop loss at 55,200.
