Gold Prices Surge After US Data, What's Next?

With just two days remaining before the end of the month, gold prices are well on their way to finishing the month in the red. For the previous four months, the price has been falling, and a close below the previous month's close of 1965 would add to the anxiety of worried investors. Investors have been keeping a close watch on the for the last two trading days to see whether it can reverse its downward spiral or if they should prepare for greater losses.

Background

Gold prices have had a rough time during this month as the price has mostly traded through out this month, with a low of 1884, and the low for the previous month was 1902.

Weekly chart showing gold price by Avatrade

Chart showing daily price for gold by Avatrade

The sell-off in the price of gold has been more prominent against the dollar, which has gained more momentum this month as investors continue to assess the next policy move by the Federal Reserve while trying to make some sense about the health of the U.S. economy. Historically, holding gold assets in the hopes of a resurgence has left many investors anxious about their portfolios. Since gold is often considered a safe haven during times of uncertainty, the recent decline in gold prices has prompted concerns about the economy as a whole.

Important Data

Going into this week, investors had their focus mainly on a number of important economic events that were scheduled to be released this week and were supposed to influence the price of gold. For instance, today we had two important economic readings that had investors on edge. First, data was released about U.S. consumer confidence. The expectation for the number was to print a reading of 116, which was already slightly lower than the previous number of 117. However, the actual number came much softer than expected and printed a reading of 106. This disappointing result caused a slight panic among investors as it signaled a potential slowdown in consumer spending, which could have a negative impact on the overall economy. As a result, the price of gold saw a temporary surge as investors sought a safe haven for their funds.

Additionally, another economic event that had a significant influence on the price of gold was the release of the U.S. JOLTS job opening number. Analysts were expecting a slight improvement in the number, and the expectations were for 9.49 million, while the previous number came in at 9.17 million. But the actual number printed was 8.83 million. This number totally spooked the markets, as now once again the conversation of soft landings and hard landings has heated up again.

The number clearly indicates a picture that suggests a higher level of unemployment. Further evidence of this came in today's U.S. ADP data, which printed a much softer reading than market expectations. The ADP data printed a reading of 177K, while the forecast was for 194K. The ADP number generally sets the tone for the most important economic reading for the U.S. economy, which is known as the US NFP.

Going forward, investors will be watching the NFP figures very closely, which are due on Friday. The health of the U.S. economy and the progress of its recovery will be further illuminated by the release of this data. If the data falls short of expectations (the forecast is for 169K while the previous number came in at 187K), it may cause investors to rush into safe havens like gold, driving up the price.

In terms of trading gold, a number of factors come into play; however, from a technical price perspective, it is clear that significant support is still near the 1884 price level. Today's data has brought a lot of good news for bulls, and the price surged as a result of it as the dollar index took a nose dive and investors anticipate less further action from the Fed. The main immediate resistance that traders are keeping an eye on for this week is near 1984 (which is slightly above the high of this month, which was 1965). If the economic number scheduled to be released on Friday show improvement in the economy, we could see the price retesting the above-mentioned support at 1884.

However, if the narrative changes to a level where traders begin to anticipate fewer chances of an interest rate hike from the Fed, which leads to a weakness in the dollar index, it could push the gold price upwards towards the resistance of 1965, followed by the 1984 price point.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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