Gold Expected to Rise in Longer Term Despite Falls After US Nonfarm Payrolls

Gold markets have broken through the 50-day EMA during the trading session on Friday, slicing through the $1700 level after the jobs number in America turned out positive instead of a complete wipeout, which was a huge surprise. At this point, the market is likely to see a lot of covering when it comes to shorts in the stock market, and it is perhaps part of why gold markets are falling. Short-sellers trying to cover the margin calls might make quite a bit of sense. Perhaps it is also due to the fact that people feel much less need for safety at the moment. 

Nonetheless, central banks around the world continue to print currency like it is their ultimate job, and therefore it makes sense that gold will rise over time. Value hunters most certainly will be coming in somewhere in this general vicinity, and most certainly at the $1600 level if we get down there. We believe that breaking down below the bottom of this triangle is negative, but it also should be recognized that there is so much support underneath that it is likely that we turn around and rally again, only to form a rectangle. In other words, we may still be looking at a consolidation pattern even with this drop. Regardless of what pattern or shape we are looking at, the reality is that it is difficult to short gold, as it has been so strong over the last several months.

"Our base case is that the yellow metal is in a $50 range on both sides of $1700. It frayed the upper end in mid-May, but it has now fallen for three consecutive weeks and finished last week at six-week lows. There is little to hang one's hat on until the $1650 area," said Marc Chandler, chief market strategist at Bannockburn Global Forex in a note Sunday.

Gold prices slipped on Monday as an unexpected improvement in US employment numbers boosted optimism about economic recovery, boosting risk appetite and denting the appeal of the safe-haven metal. Monday, Gold in the range between $1677 as low and $1691 as high.

Bart Melek, head of commodity strategies at TD Securities said “we’ve still got economic uncertainty, trade tensions, problems in the (United) States,” said INTL FCStone analyst Rhona O’Connell. “For the longer term, the influences are definitely more positive (for gold) than negative.” 

From a technical point of view, gold has broken below a rising wedge pattern on the daily chart, signaling a potential downturn. Moreover, it has breached below the 50-day moving average, while the relative strength index has a bearish divergence. The hourly Relative Strength Index (RSI) has bounced-off the oversold territory and therefore, a minor bounce cannot be ruled out the downside resumes. Bearish investors might consider $1,725 as the nearest resistance level, with prices likely to test the 1st and 2nd support at $1,645 and $1,610 respectively. Alternatively, a break above $1,725 would indicate that gold has stabilized and trigger a revisit to $1,755 on the upside. There is enough market uncertainty to support gold's long-term uptrend.