Gold prices are all over the place to cap off a data rich week. Today, investors are digesting the July U.S. non-farm payrolls data. The data showed that the U.S. added 162,000 jobs in July while the unemployment rate ticked down to 7.4%. The 162,000 jobs was below consensus estimates of 175,000 jobs added.
Although recent reports may show that the labor market has stabilized, the numbers are simply not what we would call “Robust.” In fact, this report today will likely lead to increased speculation that the Fed is not likely to begin tapering next month. There is also a lot of talk that the Fed may be several months from beginning its tapering process.
This speculation on if and when the Fed may take some type of action is likely to continue to be the main driver of gold prices. The U.S. dollar has been showing more signs of strength recently however, the dollar dropped sharply versus the Euro immediately following this morning’s data. Should the greenback begin to show any significant signs of weakness it would likely lend strong support to gold prices and could be the catalyst for a further upside breakout in prices.
Prior to today, U.S. markets were hit with a ton of data and also additional central bank monetary policy decisions. The ECB held rates at current record low levels, and reiterated that low rates will be here until well into next year at the very least. The data that was released continued to show signs of strength in areas of manufacturing and housing. Weekly jobless claims showed their lowest reading since the recovery began.
All in all, it looks like the economy is picking up some steam. It just does not appear to be enough. Between the Fed and the ECB this week, central banks clearly feel that the economy is still too fragile to begin easing upon stimulus. This has to be at the very least a little concerning to investors. The data stream will continue to be monitored closely, and any signs of weakness could give gold a huge boost as the Fed may then be forced to keep its foot on the gas.
From a technical standpoint, gold was sold off overnight as sell stops clustered under the $1300 level went off. The market recovered quickly however, following the jobs data. Gold prices are back above their 20 day EMA currently.
Gold has been in a consolidation pattern for the last ten days or so, and today appears to have been a false breakdown. We still feel that gold prices need to take out the 50 day EMA in the $1332 area to attract more buying. Given today’s data and price action, we still believe that we will see an upside breakout in gold prices in the near future.
Chart Source: QST
