Gold rallied significantly after the European Central Bank cut its policy rate by 25 bps, catching the market by surprise. This dovish move resulted in renewed speculation that the Fed will follow suit and ditch their QE Tapering timeline entirely. As a result of which, Gold which is a QE inflation hedge was propped up higher immediately, breaking the 1,322 resistance and tagging the ceiling of the prior consolidation zone found on 1st November.
Unfortunately for these speculators, prices were quickly knocked when US released its quarterly GDP report. Q2 GDP growth was revised higher by almost 50%, coming in at 2.5% versus 1.7% previous. This would have been a strong print in itself, but Q3 numbers managed to do even better, coming in at 2.8% and beating the 2.0% analysts consensus estimate. Such stupendous readings strengthens the case for current quantitative easing program to be tapered, resulting in Gold prices quickly falling – trading below 1,300 at one point.
The bullish pullback after price broke 1,300 isn’t unexpected, as we’ve noticed huge amount of long orders that have been building up recently. What is more important is that the bullish recovery remain below the 1,310 support turned resistance, forming the next consolidation zone awaiting the next bearish push. Slowly but surely, Gold bears are making headway downwards.
Nonetheless, with US Non-Farm Payroll event risk looming, there is a chance that we could see prices climbing back up to 1,322 once again should NFP numbers come in much lower than expected. However the likelihood of this happening is low as market has already priced in a bearish Non-Farm Payroll outcome. It is entirely possible that if we didn’t have NFP today, Gold prices could have reverted below 1,300 with bears likely be more courageous without the economic event risk ahead. Hence we have a larger downside risk for Gold in the near term.
Long-term bias remain bearish, with the Channel Bottom bearish rejection seen last week looking likely to be confirmed with this week’s bearish candle. Stochastic readings are pointing lower once again, and threatening to close below the Signal line – suggesting that bearish momentum is entering back into play once more. However, the confirmation candle is not the strongest, with the spinning top candlestick reflecting the uncertainty of market direction.
But this uncertainty is understandable given the NFP event risk and coupled with the fact that last week’s COT long positions actually increased. All these will definitely clear up by the end of today, and hence should both aforementioned factors turn out to be bearish for gold, theoretically we should see bearish acceleration next week (especially since price would like be under 1,300 support should that happens). Bears will only need to be concerned If prices actually rallied on Monday and climb back up above 1,300 again, as that could mean yet another bullish push towards Channel Bottom once again.