{x} | Trading.live

Abstract: Risk aversion receded and global markets started a brand new week on a positive note. Nonetheless, supported by strong fundamentals, the gold bulls still maintain an overall technical advantage in the near term. The next target for the bulls is the top of the range.

Fundamentals

On Friday, global markets started the new week on a positive note after U.S. President Biden signed the debt ceiling bill into law, averting a catastrophic default by the U.S. government. As risk sentiment improved, gold prices continued to come under pressure and extended their losses on Monday (June 5), with their safe-haven role significantly weakened.

Meanwhile, data released by the U.S. Department of Labor on Friday showed that non-farm payrolls increased by 339,000 jobs in May, nearly double the median estimate of 195,000 jobs. It was the largest gain since January 2023, highlighting the strength of the U.S. job market.

Subcomponents of the report, such as the unemployment rate rising from 3.4% to 3.7% and average hourly earnings growth slowing from 0.5% in the previous month to 0.3%, seem to be moving in the direction the Fed would like to see. The contradiction between strong demand for workers and easing wage pressures in a situation of apparent supply shortage is notable but likely acceptable to the Fed.

Following the data showing robust economic growth in the U.S. in May, the possibility of another rate hike by the Fed has slightly increased, which has strengthened the U.S. dollar. This has been a significant factor weighing on gold prices, which continued to face downward pressure on Monday. However, according to the CME FedWatch tool, there is a 76% probability that the Fed will maintain interest rates unchanged at its meeting on June 13-14, providing a floor for gold prices. To see an upward movement in gold prices, we would need to see the Fed become more dovish, which may require weaker economic data.

From a technical perspective, the gold bulls still maintain an overall technical advantage within the range. The consolidation zone around $1930 has recently been viewed as a solid support, and a failure to hold this support level could potentially drag the price further down toward the support area around $1,920. On the upside, if the gold price manages to close above $1,952 during the day, it would regain upward momentum and target the next resistance zone of $1,965-$1,970.

Technical Analysis

From a technical perspective, some follow-through selling below last week's lows would be seen as a fresh trigger for bearish traders and pave the way for further declines. The gold price might then accelerate its decline towards the support area of $1,920-$1,909 and eventually fall below the $1,900 round-figure mark.

However, at the time of writing, gold prices gathered bullish momentum and climbed to the top of the $2,962 intraday trading range as the release of U.S. economic data coincided. The sharp drop in the 10-year U.S. Treasury yield following the dismal ISM Services PMI data in May was a major factor driving the strong rally in gold prices. It was also in line with our range trading (bullish) expectations.

The strong rally in gold prices has also weakened the further downward momentum after Friday's sharp price decline. Nevertheless, due to the overcrowded time cycle and the strong resistance faced (50% and 61.8% Fibonacci retracement levels), it is believed that the short-term upward trend will be difficult to sustain. Even if the bulls are able to clear these obstacles, it is still some distance away from breaking the range high of $1,993. And a break above that level is needed to get its uptrend back on track, otherwise, there is still the risk that the slide will eventually touch the 200-day SMA.

Overall, the short-term surge in gold prices was triggered by data-driven market sentiment, and a price adjustment is certainly needed given the crowded time cycle. As mentioned earlier, closing above $1,952 during the day would increase the certainty of short-term directional choice, but chasing the rally is not recommended. Instead, it's recommended to buy the dips.

Trading Recommendations

Trading Direction: Long

Entry Price: 1947

Target Price: 1993

Stop Loss: 1932

Valid Until: 2022-06-19 23:55:00

Support: 1946, 1938, 1932

Resistance: 1962, 1969, 1983