Gold finished lower last week, but showed enough resilience to consider the possibility of a little more short-covering this week. However, the fundamentals and technical are bearish so it’s hard to get excited about the upside unless the buying is strong enough to overcome $1330.80.
In the meantime, the market is struggling to stay above last year’s close at $1294.20. Last week, sellers toyed with the idea of crashing this market when they took out $1287.50 to reach a new low for the year$1284.90, but they were probably a little hesitant to do so ahead of the U.S. Non-Farm Payrolls report.
Last week, June Comex gold settled at $1295.60, down $2.90 or -0.22%.
Gold has been a tricky market to trade this year. It started out strong, driven by expectations of a change in policy to dovish by the Fed. However, the rally stopped cold on February 20 at $1356.00. A month later, traders got their wish when the Fed strongly suggested it wouldn’t raise interest rates the rest of the year. However, bullish traders reacted with a whimper and the rally stalled again at $1330.80. It’s now trading only slightly above where it closed on December 31, 2018.
It’s hard to pin the weakness on one cause. Gold traders have had to deal with the Brexit deadline, President Trump walking away from nuclear talks with North Korea, the on-going U.S.-China trade dispute and the threat of additional tariffs, and a steep plunge in U.S. Treasury yields which caused an inverted yield curve, which signaled a potential recession later in the year.
Oh wait. All of those are potentially bullish factors if you believe in conventional wisdom that says gold is a safe-haven asset and goes up during times of geopolitical turmoil. I think the problem is, gold is not the safe-haven asset of choice anymore. That goes to the U.S. Dollar and the Japanese Yen.
Gold traders may or may not react to this week’s U.S. economic data, which includes consumer and producer inflation data, the FOMC Meeting minutes and several Fed speakers.
Additionally, gold traders may not be bothered by the direction of Treasury yields. However, they are likely to react to the direction of the U.S. Dollar and appetite for risky assets.
All we can say at this time is gold is not a leader, it is a follower. If Friday’s price action is any indication then we could see some light short- covering early in the week if yields decline as well as equity markets.
U.S. stocks are up about 10 sessions from their recent bottoms and investors are getting ready for earnings season so they have an excuse to book profits. This may be just enough to attract some buying.
However, turning lower for the year on a move under $1294.20 and taking out last week’s low at $1284.90 with conviction could drive prices another $10 to $20 lower.
This article was originally posted on FX Empire