Gold Trades Under Pressure as Risk-On Market Sentiment Returns

A one-two combination of an extremely strong jobs report coupled with statements by Federal Reserve Chairman Jerome Powell resulted in market sentiment taking a 180° turn from extreme bearish sentiment to extreme bullish sentiment in regard to U.S. equities.

After experiencing over a 600-point drop in the Dow Jones Industrial Average yesterday, the Dow recovered briskly today as it gained 746 points and closed at 23,433.16.

Jerome Powell, in a panel discussion which was held in combination with Janet Yellen and Ben Bernanke, said that the central bank would be “patient” to see how the economy evolves given conflicting signals from the market and economic data. His statements also suggested that the markets are pricing in downside risk which is “well ahead of the data.”

These statements occurred in conjunction with an extremely strong and robust U.S. jobs report which indicated that 312,000 jobs were added last month. These numbers were far in excess of any estimates by the analysts who were forecasting that 182,000 new jobs were added last month.

The jobs report clearly indicated that the economic environment was much stronger than anticipated and the likelihood that the United States is moving into a recession is greatly reduced based on figures released by the Labor Department today.

Although the U.S. dollar was slightly weaker today, trading off by 0.12%, gold and silver prices suffered. Gold prices saw their largest decline in the last two weeks as a result of strong numbers in the jobs report coupled with Chairman Powell statements.

Gold futures lost $8.10, with the most active Comex February contract closing at $1,286.70. This occurred after reaching the highest trading point since July 15 of last year, when on an intraday basis gold prices ran to $1,300.40 per ounce. Gold pricing has been on a defined and robust uptrend since the middle of November.

In November 2018, gold prices actually traded just below $1,200 per ounce before staging a robust recovery which has lasted up until today. Even with today’s price decline, gold prices are trading well above its 200-day moving average which is currently at $1,255.30. This strongly suggests that, on a technical basis, gold continues to be in a long-term bullish trend. Currently, our technical studies indicate strong support at $1,275, which is the 0.38% Fibonacci retracement. These studies also indicate that current resistance resides at $1,300 to $1,312 per ounce.

Wishing you as always, good trading,