By Bhavik Patel
Floodgates opened in Gold after it breached its psychological support of $1900 last week. Now gold has taken support around $1820 and is in an oversold region. Not just gold but silver also is in the oversold region and we believe the majority of the correction has been done and we could see a little bit more correction if today’s Non-Farm payroll data comes stronger than expected. The key non-farm payrolls number is expected to come in at up 170,000 compared to a rise of 187,000 in the September report. Wednesday’s big downside miss in the ADP jobs report has many now thinking the more important jobs report Friday will also be a miss to the downside.
The recent weakness in gold is attributed to the rise in USD and Treasury yields. But in last two trading sessions, US Dollar has retraced and US 10 and 30 year Treasury yields have also retraced but gold still has struggled to gain and has now 9 consecutive days of lower close. This indicates that despite relief in USD and bond yields, traders are not confident to take a long position in gold owing to today’s employment data from the US. If today’s data comes lower than expected, then we might see some long positions get created and traders testing the waters. Also Fed’s approach of higher for longer rate theory is in the minds of traders so they are not taking any long positions in gold. According to the CME’s FedWatch tool, there is only a 19.6% probability that the Federal Reserve will raise its benchmark rate at the November FOMC meeting. The probability that the Federal Reserve will implement one last rate hike this year by 25 bps in December is now 29.4%.
Technically MCX Gold is in oversold region as RSI_14 is trading at 25 and historically we have seen reversal from prices around this zone. Today’s employment data is crucial and if it comes negative for gold then we believe it will be a good opportunity to go long as risk/reward does not favour any short positions from here on. If anyone has their short positions, they can book profit and we would recommend to go long around 56,000-55,500 for expected target of 57,500 and stoploss of 55,200.
(Bhavik Patel is a commodity and currency analyst at Tradebull Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)
