Gold price forecast: Double bottom at $1,266?

May 5, 2019

London (May 5)  The Goldilocks US monthly jobs report released earlier today, triggered the Dollar sell-off, helping the yellow metal bounce from the April 23 low of $1,266.

As of writing, the zero-yielding safe-haven metal is trading at $1,279, representing a 0.47% drop on a weekly basis.

Prices picked up a bid at lows near $1,266 after the US data released at 12:30 GMT today showed the labor market further strengthened in April, but wage growth remained anemic, validating the Fed's decision to pause rate hikes.

While the non-farm payrolls figure came in at an impressive 263K and the jobless rate fell to 3.6% – the lowest level since December 1969 – the average weekly earnings rose 0.2% month-over-month, missing the expected growth of 0.3%.

With wage growth showing little signs of life, the Fed has enough room to keep rates unchanged for the rest of the year and allow the labor market to run hot.

Hence, it's no surprise that the greenback fell following the release of the monthly jobs report. The Dollar Index clocked a high of 98.10 immediately after the payrolls release only to fall back to 97.50.

The Goldilocks US jobs report will likely keep the greenback on the defensive next week, helping the yellow metal complete the double bottom pattern with a rise to the neckline resistance at $1,288 - more so, as Trump administration is biased towards rate cuts.

Acceptance above the neckline hurdle of $1,288 would open the doors to $1,310 (target as per the measured move method).

The gains may be extended further, if the US consumer price index for April, scheduled for release next Friday, prints below estimates, boosting the odds of Fed rate cut.

A convincing break above $1,300, however, would remain elusive if China's trade and inflation numbers miss expectations by a big margin, triggering a wave of risk aversion in the global market.

It is worth noting that the US economy is performing much better than the other advanced nation. Further, interest rate differential is heavily skewed in favor of the greenback. Hence, markets are likely to prefer the USD during times of stress or risk aversion.

Back-to-back long-tailed weekly candles have weakened the immediate bearish case. Further, the yellow metal seems to have charted a falling wedge.

A break above the wedge resistance at $1,296 would signal a resumption of the rally from the August 2018 low of $1,160 and would allow a retest of $1,346 (February high).

The bearish case would weaken if the price finds acceptance below $1,266. That would expose the 200-day moving average (MA) support, currently at $1,252.


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