Gold and Silver Face Make-Or-Break Moment Ahead Of US NFPs

Talking Points

• Gold and silver tease at a break below key support ahead of Non-Farm Payrolls
• Ebbing Ukrainian concerns may prompt further unwinding of fear-positioning in gold
• Base metals vulnerable to further declines on disappointing Chinese figures next week

The precious metals are at a critical juncture ahead of the market-moving US payrolls figures due later in the session. Another disappointing reading would likely sink the US Dollar and as such could act as the saving grace for gold and silver as they trade near key levels of support. Meanwhile, the base metals including copper are likely to look to Chinese economic data next week for guidance.

Gold Poised For Volatility On Surprise NFP Print

Gold is facing a make-or-break moment in the hours ahead as the commodity teases at a break below $1,277 ahead of the monthly US jobs report. The closely-watched employment data holds implications for the precious metals via its influence over Fed policy and the US Dollar.

FOMC officials have reiterated a need to keep US monetary policy highly accommodative in order to support continued progress in the domestic labor market. Thus a jobs added figure below the 218K currently anticipated may dampen expectations for a more timely end to the end of quantitative easing, which would be USD-negative.

Historically gold has witnessed significant volatility following the release of the figures. The chart below illustrates the yellow metal’s percentage change after 6 hours of the release, and the deviation from expectations. It demonstrates a strong relationship whereby a disappointing reading has been met by a positive reaction from gold. For example, a 0.72% rise for gold followed the lower-than-anticipated figure for April.

Crude oil’s reaction to NFPs is much less pronounced, as demonstrated by the scatter plot below. The percentage changes within 6 hours of the release have not exceeded 1 percent for each of the 12 surprise readings over the last 12 months.

DailyFX Chief Strategist, John Kicklighter discusses further implications of the event on the US Dollar and US equities here.

Looking Past Payrolls

While the USD offers gold some guidance, much of the recent weakness in the precious metalscan be attributed to traders unwinding fear-driven positioning that built up on tensions in Eastern Europe. With the market seemingly looking past the ongoing Ukrainian turmoil, this may leave gold and silver vulnerable to continued declines.

However, a relatively light US economic docket next week raises the question of what could help the greenback recover from its recent slump. Several major central bank rate decisions including the BoE, ECB, and RBA may offer guidance to the US Dollar index via its major components. However, unless we see US 10 year yields start to lift-off, the reserve currency may be left to flounder, which in turn could offer some support to gold and silver prices.

Meanwhile, base metals may continue to face selling pressure if we see another disappointing reading from next week’s Chinese trade figures. Concerns over a deceleration in economic growth and tightening credit conditions in the Asian giant have likely contributed to the plunge in copper prices over the week.

CRUDE OIL TECHNICAL ANALYSIS

Crude oil has broken below trendline support following the emergence of an Evening Star formation on the daily. Alongside building downside momentum (reflected by the rate of change indicator) and a move below the 20 SMA a bearish technical bias is retained. The daily close below the psychologically significant $100.00 handle is seen as an opportunity to enter new short positions. However, traders should also be mindful that volatility, reflected by the ATR continues to decline, which generally doesn’t favor breakout trading.

Crude Oil: Breaks $100.00 As Downtrend Emerges

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS

As noted in recent commodities updates the technicals have been painting a bearish picture for gold. Prices remain below the descending trendline, which was confirmed following a test of resistance at the $1,305 mark. This comes in addition to building downside momentum, signaled by the rate of change indicator. A break below critical support at $1,277 would open up an extended drop to the next definitive level at $1,240.

The DailyFX Speculative Sentiment Index suggests a bearish bias for gold based on trader positioning.

Gold: Faces Test Of Critical Support Level

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS

The silver bears have firmed their grip on prices with the precious metal plunging to the critical $19.00 handle in recent trading. Bearish technical signals remain with prices below the 20 SMA and a negative reading from the rate of change indicator. However, new shorts would be better served on a break below $19.00, or a retracement to $19.65 given the strong buying support at current levels.

Silver: Make Or Break Moment Near $19.00

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS

Copper is threatening a break below trendline support as the commodity shows signs of shifting to a short-term downtrend. A close below the next definitive level at $2.980 would suggest a decline to the 2014 low near $2.910.

Copper: Threatens Break Below Trendline Support

Daily Chart - Created Using FXCM Marketscope 2.0

PALLADIUM TECHNICAL ANALYSIS

Palladium remains in an upward trend channel following the original breakout above the range-top at $753. However, the 2014 highs near $810/5 continue to cap gains for the precious metal. While there had been hints at a dip from candlestick reversal patterns, a correction has failed to materialize. A break above $810/5 would offer an extended advance to the August 2011 high at $847.

Palladium: Teases Traders Near 2014 Highs

Daily Chart - Created Using FXCM Marketscope 2.0

PLATINUM TECHNICAL ANALYSIS

The multi-month consolidation between $1,313 and $1,486 for Platinum continues with prices failing to push above $1,427 in recent trading. A further pull back is likely to be met by buying support at the $1,392 mark.

Platinum: Recovery Stalls At $1,427

Daily Chart - Created Using FXCM Marketscope 2.0

Written by David de Ferranti, Market Analyst, FXCM Australia

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