After gold advanced by $32 over the last two trading days, rallying to a 9-week high, some consolidation was to be expected to close out the week. However, an apparent rebound for the Shanghai Composite index and a particularly strong non-farm payrolls report both gave fuel to a corrective pullback for the precious metal prices on Friday.
Spot gold was only down about $5 per ounce on Friday, holding near $1,104/oz. Prices fell below the psychologically important $1,100/oz level briefly on Friday morning following the release of the non-farm payrolls numbers before quickly bouncing back up. Silver was about 2% lower at $14.10/oz.
From a technical perspective, the key resistance levels for gold that have already been tested this morning are at $1,098/oz and $1,104/oz, while the next important level is at $1,117/oz. Support remains at $1,087/oz and $1,083/oz, with the key range at $1,071/oz if the price falls below the first two support levels. If prices break below $1,080/oz, this would spell a bearish reversal for gold. If the metal can continue to build momentum, it may rally all the way to its 200-day moving average (200-DMA), which is currently at $1,140/oz.
NFP Beats Expectations
The fact that gold quickly recovered from its initial drop this morning speaks to the strength of the external influences on gold from the Middle East and Asia. This is because the ADP non-farm payrolls came in far and away above expectations, with 292,000 new jobs created in December against consensus expectations around 200,000. In addition, the NFP numbers for the previous two months were also revised higher. Unemployment sat at 5.0% although the labor participation rate remained very low at 62.6%. With the weight of these rosy employment numbers, it's telling that gold has mostly maintained its longest rally since October.
The extremely positive signal from the jobs numbers had an impact on the forex markets, as well. The dollar gained 0.3% to 98.5 on the DXY, while the euro caved to downward pressure by moving a third of a percentage point in the opposite direction to less than $1.09. The People's Bank of China (China's central bank) set the benchmark for the yuan higher, creating broad support for the USD, as well.
Impact from China Still Being Felt
The precious metals are also receiving support from yesterday's huge selloff from the global stock markets. Equities around the world followed Chinese stocks lower as all hell broke loose on the Shanghai Composite index. With the yuan falling to a 5-year low, trading was halted by a circuit breaker after less than 30 minutes of action. Trading was subsequently suspended for the entire day, but the index still managed to lose about 7% during the truncated session. Beijing intervened on Friday, with state-sponsored buying of stocks helping the Shanghai Composite close about 2% higher overnight.
Equities in the U.S. have tracked lower to begin the new year, as well. Both the Dow Jones and the S&P 500 have seen their worst-ever performance over the first four trading days of the year. (You have to go back to 1896 to find a worse new year for the Dow Industrials—and the listed members weren't compiled into a single index until 1928.) The energy sector has also been reeling, as crude oil prices closed at 12-year lows on Thursday. The ongoing conflict in Syria and rising tensions between the region's two major powers (Saudi Arabia and Iran) are exacerbating the slump for oil.
In addition to the turmoil in the Middle East and the Chinese economy, the fallout from the supposed hydrogen bomb test by North Korea is adding fuel to the fire sale of equities. So long as these geopolitical tensions persist, expect the precious metals to receive support from safe haven buying.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.