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Summary: Gold prices regained some positive traction on the first day of the new week and rebounded from levels slightly below the psychological mark of $2,000 late on Friday.

Fundamentals

On Friday, gold came under heavy downward pressure as the U.S. 10-year Treasury yield surged 2% after data from the U.S. Department of Labor showed that non-farm payrolls rose by 253,000 in April, well above market expectations of 179,000. The sharp retracement from the previous day's all-time high of $2,078-2,079 was extended.

Nevertheless, gold regained some positive traction on the first day of the new week and rebounded from levels slightly below the psychological mark of $2,000 late on Friday. It is currently trading near the top of the intraday trading range.

The Department of Labor reported that the U.S. economy added 253,000 jobs in April, well above expectations of 179,000 and also well above the downwardly revised 165,000 jobs from the previous month.

Sub-indicators showed that the unemployment rate unexpectedly fell from 3.5% to 3.4%, the labor force participation rate was 62.60%, unchanged from expectations, and average hourly earnings rose from 4.3% to 4.4%. Rising payroll inflation is good for the U.S. dollar, so this in turn pushed the U.S. dollar to rally further and severely depressed the price of USD-denominated gold. Meanwhile, the upbeat labor market report may have dashed hopes that the Fed is about to pause its rate hike cycle in June.

On top of that, a positive shift in global risk sentiment (as depicted by the stock market recovery) further pushed gold prices sharply lower intraday. As losses increased, this non-yielding asset ended a three-day run of gains but still held its weekly gains.

What is interesting now is whether the asset can continue to attract more buyers, or whether the ongoing decline marks the end of the more than six-month uptrend, which forms an ascending channel in the daily chart. Therefore, the cautious approach is to wait for the price to continue to rise and then observe the sell-off signals before confirming whether gold has formed a recent top and is prepared for any meaningful corrective declines.

The word on the side is that since gold broke out to a record high of $2,074 on Thursday, the potential for further price gains is currently limited, although we expect it to continue higher. That's because the market is likely to be data-driven in the coming months, and it's also too early to try to guess whether the Fed's next interest rate adjustment will be up or down.

Investors with a longer-term view have also become more cautious recently. After a large inflow of money into gold ETFs in the second half of March, buying interest has waned again.

Technical Analysis

Gold has been under bearish pressure since breaking above the all-time high of $2,074 and this momentum is likely to persist in the near term. While any follow-through rally could push prices up to the $2,050 supply area, we believe that more follow-through rallies should be limited to the $2,038 level to ensure that the bearish trend is intact.

The daily swing low near the $2015 range is now the direct support to protect the bulls' further upward movement, followed by the psychological mark of $2,000. A convincing break below the latter could trigger some technical selling and accelerate gold's decline toward the $1,980 range. More follow-through selling would negate any near-term positive outlook and shift the bias to the downside.

It’s worth noting that there is an intermediate support level at $2,001.82, which is also an overlap support and coincides with a 23.60% Fibonacci retracement. This level may provide a temporary bounce if the price were to drop toward the first support level.

At the same time, the Relative Strength Index is showing a bearish divergence from prices, suggesting that a reversal could occur soon. This enhances the possibility of a bearish continuation to the first support level. In terms of trading strategy, it's recommended to go short at highs. The holding time should not be too long.

Trading Recommendations

Trading Direction: Short

Entry Price: 2038

Target Price: 1915

Stop Loss: 2080

Valid Until: 2022-05-22 23:55:00

Support: 2025, 2015, 2001, 1983

Resistance: 2038, 2050, 2070, 2080