If something can’t go up on good news, that is rarely a good sign in markets.
In theory, the softer US jobs report at the end of last week should have been a clean setup for gold. The non-farm payrolls figure rose by just 29k in September, well below expectations around 90k, while the unemployment rate ticked up to 4.2%.
While that was enough to cool expectations for another Fed rate hike this month, gold has struggled to turn that into any meaningful upside.
The main problem for the precious metal right now is that the bond market is still refusing to play along. 10-year Treasury yields briefly fell towards 5.16% after the jobs data before snapping back higher, and they remain elevated near multi-decade highs around 5.26% today.
That continues to act as a headwind for a non-yielding asset like gold, keeping the opportunity cost of holding the precious metal uncomfortably high even as the Fed outlook turns a little less hawkish. And the technicals are also starting to reflect that frustration.
Gold is being pushed back to just below $4,140 today, leaving it not far above the late September lows around $4,115-20. That area also lines up with the 78.6 Fib retracement level of the swing higher from July to August, seen around $4,117. So, the overall price movement and region above suggests that buyers are approaching a fairly important test.
A break below there would weaken the recovery structure further and put the $4,000 psychological level firmly back into focus.
But for now, as long as the region around $4,115-20 holds, I wouldn’t call the downside break confirmed just yet.
The near-term chart isn’t exactly helping buyers either. Gold has slipped back below its 100-hour moving average (red line) around $4,163, after recent rebounds repeatedly failed to build momentum above that line.
The sequence of lower highs is also keeping sellers in control, while the 200-hour moving average (blue line) closer to $4,215 adds another layer of resistance overhead.
So despite the softer jobs report on Friday, the bond market has essentially stopped gold in its tracks. And unless yields start to ease more convincingly, the technical picture suggests that the late-September lows are likely to be tested before buyers can think seriously about rebuilding any upside momentum again.
This article was written by Justin Low at investinglive.com.