Gold tumbles after last week’s dramatic rise

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On Friday, September 3, gold prices moved dramatically higher after the U.S. Labor Department released its jobs report for the month of August. Economists polled by Dow Jones and Bloomberg were anticipating that there would be an additional 700,000 to 750,000 new jobs added last month. However, the actual numbers came in far below the estimates, with the U.S. adding only 374,000 nonfarm payroll jobs in August.

This disappointing number compared to the estimates meant that the Federal Reserve would probably maintain its accommodative monetary policy. Their dual mandate of inflationary rates around 2% and full employment has shifted, favoring full employment while letting inflationary rates run hot. This put pressure on the U.S. dollar and concurrently was a major factor in taking gold moderately higher.

While the Federal Reserve had anticipated the onset of tapering their $120 billion monthly asset purchases as soon as November or December, the disappointing jobs report made it plausible that if they do taper, it will be at a slower pace, or they could wait until the beginning of next year to initiate the process.

Besides a disappointing jobs report, there was the real concern of the Delta variant infecting record numbers of Americans. MarketWatch reported that “U.S. COVID-19 case tally tops 40 million, and hospitalizations over Labor Day holiday were more than double last year’s.”

Currently, there have been more than 221 million confirmed cases of the coronavirus globally. However, the United States continues to have the largest case count. According to the New York times, tracker United States is averaging more than 1500 deaths daily, this for the first time since March.

The Financial Express summarized Friday’s fundamental basis for gold moving higher, saying that, “The Fed has made a labor market recovery a condition for paring back its pandemic-era asset purchases and with the current data, the expectation is that start of tapering assets may begin early next year instead of December. Americans have become reluctant to return to the workforce for fear of infection, and August jobs data reflects that.”

However, even with a disappointing jobs report and a rise in reported cases of Covid 19, gold prices fell sharply today, giving up $37.90, just over a 2% price decline. Gold futures basis the most active December 2021 Comex contract is currently fixed at $1795.90. Current pricing is just above the intraday low of $1793.70 and far below today’s intraday high of $1833.50.

Dollar strength certainly was a component of today’s sharp selloff in gold. The dollar gained 0.56 and is currently fixed at 92.545. Rising yields in U.S. debt instruments were also cited as a key component creating bearish sentiment in gold pricing today.

However, collectively both dollar weakness and higher yields in U.S. debt are not enough to account for the dramatic 2% fall in gold pricing. Many analysts are citing the fact that when gold was unable to trade and close above $1830, it set into motion long position liquidation and profit-taking from short-term futures traders as a key component to today’s dramatic selloff.

On a technical basis, it is critically important that gold remains at or above the current 50-day moving average, fixed at $1797. With current pricing at $1796.10, it is at a critical price point. A break below this price point would mean that gold could fall to the next support level at $1781, the intraday low achieved on August 26. Resistance is again based upon both the 200-day and 100-day moving averages, which occur at $1810 (200- day) and $1814.80 (100-day).

Wishing you, as always, good trading and good health,

Gary S. Wagner - Executive Producer