Gold prices continued to trade sideways, edging lower on Monday, as the dollar gained traction. This comes despite Friday’s weaker than expected U.S. employment report that disappointed on the headline number coming out at 157K as opposed to the markets estimate of 190K. Traders will now turn their attention to Friday’s U.S. CPI report which is expected to show an up tick to 2.7%. This coincides with Friday’s hourly earnings report, which shows wage inflation which also increased by 2.7% year over year. With oil prices on the move higher, headline inflation could continue to move higher during the balance of the summer due to increasing gasoline prices. The Chinese Yuan continued to decline versus the dollar closing near a 1-year low, making gold in Yuan more expensive. This could also continue to weigh on prices of the yellow metal. Geopolitical risk is also keeping gold buoyed, ahead of sanction on Iran which begin this week.
Gold is Consolidating Just Above Critical Support
Gold prices are poised to test trend line support which is a horizontal trend line that connects the lows in July 2017 to the lows in July 2018 and comes in near 1,204. A break of this level would generate a quick test of the March 2017 lows at 1,198. Target support after this would be the December 2016 lows at 1,120. Resistance on gold prices is seen near the 10-day moving average at 1,219. Prices are oversold and could rebound. The fast stochastic, is printing a reading of 13, which is well below the oversold trigger level of 20 and could foreshadow a correction. The fast stochastic is also generating a crossover buy signal in oversold territory which is generally considered a buy signal. Momentum as reflected by the MACD (moving average convergence divergence) histogram is neutral as the index is printing near the zero-index level with a flat trajectory which reflects consolidation.