Gold Hovers at Major Support Ahead of NFP

Gold showed little reaction to Wednesday’s as-expected FOMC Statement, ending the day marginally lower. The Federal Open Market Committee voted unanimously to keep the target range for its benchmark rate at 1.75 percent to 2 percent and upgraded its assessment of the U.S. economy to ‘strong’.

The downtrend in gold began in April 2018 and price is nearing the recent low of $1,211. Spot gold is now down 6% for 2018.

Despite global trade tensions, gold and other traditional ‘safe havens’ have failed to be lifted. Meanwhile, a more robust U.S economy and higher interest rates have caused investors to migrate to the dollar.

Some analysts argue that the U.S. economy would be more resilient in the event of a trade war, further boosting the appeal of the greenback.

The U.S. dollar yielding higher interest rates also diminishes the appeal of non-interest yielding assets like gold.

Looking at the weekly chart we can see that gold has retraced to the 61.8% level.

CNBC’s Cramer argues the case that gold may be near a bottom. The CFTC’s COT (Commitment of Traders) report shows how large and small speculators and commercial hedgers are positioned.

The latest report shows that the large speculators have not yet built up a net short position. However, they have reduced their gold futures holdings to the lowest level in years. The last time sentiment was so low was in 2015, which preceded a major rally.

Markets are now looking to Friday’s U.S. employment report. Analysts expect that 190K new jobs were created in July and that the U.S. unemployment rate ticked lower to 3.9% in July from 4% in June. Better than expected data could underpin the strength of the U.S. dollar and put further pressure on the yellow metal.