Gold Gets Another $1,800 Lifeline, But Will It Survive U.S. Jobs Report?

In a twist that probably surprised the longs in the market too, gold catapulted to settle back above $1,800 an ounce on Tuesday, just three sessions after its spectacular fall from that perch.

By the time I sat to write this, however—just after midnight in New York (1:00 PM Singapore, 5:00 AM London)—the front-month April contract on COMEX was already trending just under the support line, at $1,799.15.

Not that this matters as moving back and forth within support channels is part of the daily grind in commodities, particularly in one as heavily-traded as gold. My focus though is to figure out if gold has a real chance to stay on the $1,800 ladder and continue its climb. 

The answer, as always, is determined by three elements: headlines/data, bull/bear determination and charts.

Charts courtesy of skcharting.com

It was headlines that got gold back to above $1,800 on Tuesday and it still seems to be working in the yellow metal’s favor, though one can never tell how soon it will pivot.

Gold’s move higher came as Federal Reserve officials, comprising Kansas City’s Esther George, San Francisco’s Mary Daly and Philadelphia’s Patrick Harker, stressed that the US economy should not suffer undue damage from the Fed’s rate hikes aimed at fighting inflation. Their consensus was that there should be four hikes this year with 25-basis points per round (anything more would have to be under dire circumstances, they implied). 

Just a week ago, markets had been treated to the specter of a Fed in Dr. Doom-mode, readying to hurl the economy against a wall with as many as five rate hikes that could have 50 basis points packed in them to neutralize the so-called inflation monster. That this wasn’t so sent a frisson of relief through Wall Street on Tuesday, sweeping stocks and most risk assets up in a broad rally.

The Dollar Index, of course, wilted on the news that the Fed will be playing the long game on rates rather than a shorter, intense one. That’s really what propelled gold higher.

Inflows in exchange-traded gold funds also provided support, with those tracked by Bloomberg adding more than 5 tons of bullion Monday, extending this year’s gain to 42 tons.

But there was another headline that worked for gold and worked big: White House press secretary Jen Psaki’s revelation that around 9 million job-hunters were out sick in early January, possibly due to Omicron cases of COVID. This fed speculation that Friday’s nonfarm payrolls will have a big miss on expectations. 

The consensus of economists so far is that employers added 150,000 positions in December versus 199,000 in November. Based on Psaki’s remarks, last month’s number could be even smaller. 

Given the Fed’s laser focus in maintaining employment recovery, which it is keeping on an even keel with its inflation fight, the central bank might be even more conservative with its tightening measures over the next few months.

From a headlines/data perspective, the prospect of a more moderate Fed creates more headwinds for the dollar and Treasury yields. It empowers gold bulls more than bears and keeps the yellow metal within or near $1,800 till the nonfarm payroll numbers land at 8:30 AM ET (13:50 GMT) on Friday.

What happens thereafter is anyone’s guess. So the question remains: Will gold’s hope to circle $1,800 survive the jobs data? We’ll know the answer in about 48 hours.

The other indicator for gold’s prospects is, of course, technical charts. 

After last week's straight $73 fall from $1,853 to $1,780, gold has recovered $28, rising from $1780 to $1808, which measures as a 38.2% Fibonacci retracement of the original drop, notes Sunil Kumar Dixit, chief technical strategist at skcharting.com

“There may be some sideways consolidation for retest of support areas before resuming recovery to the next leg higher of $1,817 and $1,825, which are 50% and 61.8% Fibonacci levels of the $73 fall,” said Dixit.

On the intraday four-hours chart, the stochastic reading of 15/27 is approaching oversold territory and prices are revisiting the support zone, which could resume gold's recovery with a potential retest of the previous $1,808, $1,817 and $1,825 levels, he said.

Adds Dixit:

“Bears are very likely to come at the resistance test areas of 1817-1825.”

“Firmly advancing above the $1,825-$1835 cluster and clearing 1853 is rather challenging and unlikely unless there is some very strong geopolitical trigger.”

“Also, it's important to note that a break below $1,780 will be the initial sign of bears digging deeper for $1,768 - $1758 as immediate targets that could extend to $1,735.”

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Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.