Posted on November 07, 2014
Gold prices are moderately higher this morning following the release of the non-farm payrolls data for October. The U.S. Department of Labor reported that the U.S. added 214,000 jobs while the unemployment rate dipped slightly to 5.8 percent. While this is a decent number, it seems that markets were anticipating better. In fact, many had thought that the jobs data would likely show an increase in jobs in the 250,000 to 280,000 range. Thus, stocks are slightly lower as of this post. The dollar index is seeing some selling as well.
This disappointment in the jobs data is likely causing some gold shorts to cover positions here. In addition, the gold market has seen over $100 shaved off the price of gold in just the last two weeks or so and that rate of decline may not be sustainable. The gold market appears to be oversold on a short-term basis, and a bounce in prices is becoming more and more likely.
The dollar index is under slight pressure after the jobs data. The greenback remains at multi-year highs, however, and will likely continue to act as a barrier to higher gold prices. Unfortunately for the gold bulls, it is difficult to imagine a large reversal in the dollar right now given the state of economic affairs in Europe and Japan. While gold can still rally in the face of a stronger dollar, it makes it that much more difficult.
Seeing how stocks hold up in the coming weeks may also be key for gold. Now that the Fed has taken away the crutch of QE, it will be interesting to see how investors react should the data begin to take a turn for the worse. Although the notion of higher rates to come is a bearish factor for gold, significant stock weakness could still potentially work in gold’s favor. As of right now, however, the equities markets appear to be in the midst of another leg higher.
From a technical standpoint, the bears remain in firm control of the gold market. Given recent ETF outflows and the steep drop in prices, however, it would seem that some type of short-term bottom may be near. Gold is in the process of making an outside day up on the daily chart today. If the gold bulls can stay strong today and push prices higher early next week, more shorts will likely cover and the market may test the breakdown level in the $1183 area. This could be huge for gold as a solid break above this level could potentially negate some of the recent technical damage. On the other hand, it is not uncommon for markets to test breakdown or breakout levels before rolling over once again.