Gold Trading at a Critical Level Ahead of the NFP

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Gold Trading at a Critical Level Ahead of the NFP

Gold has been trading in a messy consolidation since November. When we look at the daily chart and drown out the intra-session noise, we can see that the consolidation has been in the form of a triangle.

Gold (XAU/USD) Daily Chart 1/9
gold daily chart 1/9
(click to enlarge)

The daily chart shows gold trading at the crossroad – between bullish signs since November and the prevailing downtrend since July. Strong bullish daily candlesticks along with higher lows suggest a shift in trend is occurring in gold. However, price has remained under a falling trendline from July and the 100-day SMA. The daily RSI has held below 60, which reflects maintenance of the prevailing bearish momentum.

As we get started with the new year, gold has climbed back above 1200, and is now threatening to break the noted resistance factors.

NFP: The market is gearing up for 2015’s first NFP report, which is expected to show around 241K jobs added in December. This is not a gloomy forecast, but not impressive neither. The USD may be due for a correction unless the reading is above 300K. If it is below 240K, the correction scenario is even stronger, which means a bullish outlook for gold.

Take a look at the 1H chart.

Gold (XAU/USD) 1H Chart 1/9
gold 1h chart 1/9
(click to enlarge)

Flag Breakout: Gold has been bullish since the start of the year, after a brief dip to 1170. This week, it consolidated in a flag pattern, but traders pushed price above this flag pattern during the 1/8 session. Note that the 1H RSI is still holding above 40, and price is holding above the 200-, and 100-hour SMA, trying to return above the 50-hour SMA as well. This shows that even though gold was rejected from going above 1220, bulls are still in control this week heading into the key NFP report.

Will NFP Revive Bearish Trend in Gold?
 Not likely. A reading between 250K but below 300K might keep a gold rally at bay, but it probably will NOT revive the downtrend in gold, which is clearly in a mode of consolidation with upside risk. A reading above 300K however, flatten the bullish correction scenario and thus put the 1130-1140 2014-lows in sight.

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