Gold Technicals – Remaining Bullish After NFP Dust Has Settled

Gold prices rallied after the big miss in US Non-Farm Payroll was announced. Immediate reaction would be to assume that this rally occurred because of easing of stimulus concerns (read: lower probability of Fed tapering QE in the near term), but this assertion doesn’t really hold as US stocks actually traded lower after the news was released. Then again, USD did weaken against other major currencies post NFP, while US yields also climbed lower slightly, suggesting that the original assertion about lowered taper fears may have some truth in it.

The implication of this is that Gold prices may remain sensitive towards future FOMC meeting outcomes, and the downside risk for Gold moving forward remains high considering that latest FOMC minutes were actually “hawkish”. It is clear that the previous set of voting members have indicated that inflation risks are of a greater concern moving forward, which was what prompted the taper. There is no evidence that the new set of voting members will think similar, but the odds of a 180° switch is unlikely given that most of the voting members remain the same. Furthermore we know that QE will eventually come to a full stop – in 2015 if not 2014, hence the long-term rally potential for Gold is tenuous at best.

Hourly Chart

That does not mean that price cannot rally in the Short-Term.  Currently price is trading above 1,250 round figure resistance, but perhaps the more importantly price have cleared last Monday’s high, something that the post NFP rally failed to accomplish. This suggest that current bullish momentum may have strong follow-through, and the rally post NFP is not a knee-jerk reaction. That being said, other technical signs point to a bearish pullback in the immediate future with prices currently testing Channel Top (from Daily Chart) with Stochastic readings being heavily Overbought and is in the midst of correcting lower.

However, even a short-term pullback does not mean that overall bullish momentum is invalidated. Should price trade lower from here but manage to stay above the rising Channel Top and preferably above last Monday’s high, the likelihood of a bullish rebound increases, and we could even see bullish acceleration when the Daily Channel Top is broken.

Daily Chart

Overall direction for Daily Chart is bearish, but with Stochastic curve pointing higher once again and even crossing the Signal line in the process, a break of the 1,250 and descending Channel Top confluence cannot be ignored. Nonetheless, long-term bullish recovery remains a huge question mark considering that resistances abounds above Channel Top in close proximity. Add this to the bearish fundamentals for Gold and the high downside risks explained previously, and the likelihood of price faltering at any of the resistances becomes higher.

It’s not all doom and gloom though, and there is a slight chance that sentiment in Gold is shifting. Despite the sharp decline on 6th Jan that was triggered by a fire sale from 1 individual financial institution, Commitment of Traders report actually reflected slight increment in speculative long positions. Also, Net Long Positions have been steadily increasing ever since the week of 3rd December, suggesting that institutions have been stealthily buying Gold. Considering that these institutions seldom get it wrong, we could be seeing at least some form of short-term bullish correction in the short/mid term similar to July – Sep 2013.

More Links:
NFP A Nightmare for the Fed
Week in FX Europe – BoE And ECB Hold Rates As NFP Disappoints
Week in FX Americas – December NFP Below Expectations But Unemployment Rate at 2008 Low

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