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Summary: Gold prices are once again under heavy selling pressure as U.S. initial jobless claims continue to fall and U.S. bond yields soar. However, as part of the risk aversion, gold prices will still receive some support before next week's Federal Reserve interest rate resolution.

Fundamentals

On Thursday, the U.S. Department of Labor reported that weekly initial jobless claims for the week ending July 15 decreased by 9,000 to 228,000, which was below the unrevised estimate of 237,000 and the market consensus of 242,000.

The 4-week moving average of new jobless claims, which is generally considered a more reliable indicator of the labor market as it smooths out weekly fluctuations, declined to 237,500, a decrease of 9,250 from the revised average of the previous week.

For the week ending July 8, continuing jobless claims, which represent the number of people receiving unemployment benefits, increased by 33,000 to 1.754 million from the revised level of the previous week.

Although the labor market remains tight, last week's decline is likely an exaggerated effect due to difficulties in adjusting the data for seasonal patterns. Unadjusted initial claims typically rise in the second full week of July.

However, seasonal patterns are highly sensitive to the exact timing of the end of the reporting period, and this year's seasonal factors happen to fall in the middle. Automakers also typically shut down their factories in July to retool for new models. But the temporary closures of these factories do not always occur at the same time, which could render the government's seasonal adjustment models ineffective in removing seasonal fluctuations from the data.

With the number of workers filing for initial jobless claims continuing to decline, the U.S. labor market remains robust, leading to surging U.S. bond yields and putting renewed selling pressure on gold. Nevertheless, as part of risk aversion, gold prices are expected to find some support before the upcoming Federal Reserve interest rate decision. The latest trading price for August gold futures is $1,961 per ounce, showing a 0.20% intraday decline, with the downward trend slowing down.

Technical Analysis

As U.S. bond yields surged, driving a significant rebound in the U.S. dollar index, gold faced heavy selling pressure above $1980 per ounce. Despite our belief in a bearish mid-term trend (targeting $1860 per ounce), gold still needs to trade within a range due to time cycles, structural factors, and stable fundamentals. This implies that the overall trend remains bullish, but the upward movement may not be too significant.

Currently, the overall trading price of gold comfortably sits above the 20-day Exponential Moving Average (EMA) at $1950 per ounce. Investors should take note that a bullish crossover is about to form between the 20-day and 50-day EMAs, further strengthening the upward bias for the bulls.

If gold can sustain its bullish momentum and convincingly break above $1,975, there is a possibility of retesting levels above $1,980. Any new long positions would then target $1,993. Otherwise, the downside trend toward the target range of $1,860 per ounce would be invalidated. Considering the above points, it is recommended to focus on trading within the range.

Trading Recommendations

Trading Direction: Long

Entry Price: 1955

Target Price: 1993

Stop Loss: 1945

Valid Until: 2023-08-04 23:55:00

Support: 1963, 1948, 1937, 1927

Resistance: 1975, 1980, 1993, 2000