Gold prices, just short of resistance at 1,940, reversed down and are now heading to 1,900 again. Last week bears attempted to consolidate below this important level, but their attack was repulsed. However, recent U.S. economic statistics does not give gold buyers any positivity, and this time the 1,900 level might be broken.
Gold market participants have concerns about possible interest rate hikes in the U.S. due to excessively strong non-farm payrolls data. ADP Nonfarm Employment Change for June was more than two times higher than forecasted 228,000 jobs. Against this background the yellow metal prices fell sharply during Thursday's trading session.
The strong labor market has fueled concerns about the Fed's monetary policy tightening. The probability of a 25-basis-point rate hike at the meeting on July 26 has already exceeded 90%. This scenario is not good for non-interest earning assets, such as gold.
Meanwhile, Bank of America analysts worsened their outlook on precious metal prices. The negative revaluation is primarily due to expectations of even higher interest rates by major central banks.
Year-end outlook for gold is downgraded from $2,009 to $1,923 per ounce. According to analysts, the strengthening dollar and rising U.S. bond yields are reducing investor interest in the yellow metal. Central banks are supporting demand by regular replenishment of gold reserves, but this will not lead to a significant increase in prices until the end of the monetary policy tightening cycle.
Negative news background for gold is exacerbated by the current technical picture. The Stochastic indicator lines reversed down, crossed and gave a sell signal. It is unlikely that the yellow metal will manage to avoid another test of 1,900 and 1,890 levels.
The following trading strategy may be offered:
Sell gold in the 1,915-1,920 range. Take profit 1 – 1,900. Take profit 2 – 1,890. Stop loss – 1,940.