Gold price traded lower yesterday despite US data showing another significant drop in jobs. XAUUSD closed from $1,705.29 to $1,684.96 as the dollar gained strength across the board. Today, gold price has recouped some of its losses as it trades at $1,691.71.
According to the ADP employment report, over 20.230 million people lost jobs in April. Although this figure was better than the expected forecast which was for a loss of 20.500 million, it casts a dark shadow for the NFP report. The ADP report aims to predict the official government data which is due on Friday.
A possible explanation for this could be that investors are choosing the safety of US government bonds over gold. Both are considered safe haven assets. The former banks on the US’ credibility as a debt payer while gold is considered to have intrinsic value.
In times of risk aversion, US Treasury bills (T-bills) sometimes appeal to market participants because they expect that they would be paid their dues in time. With this, investors use US dollars to acquire the government bonds. Consequently, the dollar strengthens.
It may have also been affected by the Treasury Department’s announcement that it would auction $20 billion-worth of 20-year bonds this month.
With this said, XAUUSD could see some volatility later today when the unemployment claims report is released. Due at 1:30 pm GMT, the report is expected to show that 3 million people applied for jobless benefits in the previous week. If the appeal of US Treasuries is sustained, a negative reading could continue to be bearish for XAUUSD. On the other hand, if demand for T-bills wane, XAUUSD could trade higher on a worse-than-expected figure.
On the 4-hour time frame, it can be seen that gold price is making higher lows and lower highs. By connecting the tops and bottoms since April 14, a symmetrical triangle becomes apparent. This chart pattern is generally considered as a neutral indicator. That is, until XAUUSD breakout. Here are the levels you will need to watch out for.
Near-term resistance for the commodity is at $1,707.04. This price corresponds to the top of the triangle as well as the 100 SMA. A strong close above this price would invalidate resistance at the falling trend line. It could then suggest that there may be enough buyers to push gold price to its April 23 highs at $1,730.75.
On the other hand, if sellers dominate trading, XAUUSD could fall to the bottom of the triangle at $1,683.30. A close below this price could mean that there is bearish momentum. Gold price could then fall to its May 1 low at $1,670.25. If support at that price does not hold, the next floor would be at $1,658.94 where the commodity bottomed on April 21.