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Gold: Bulls capped but remain in control above the pivot

  • Gold prices extended the upside on Wednesday with a supportive market backdrop, from more weak economic data coming out of China, volatility in equities and the Fed expected to moderate the pace of further rate increases.
  • Gold hit a high of 1288, piercing the 61.8% Fibo of weekly swing highs and lows and the 2018 range.

Gold has ranged between 1278 and 1288 on the day, but the majority of the downside was seen in North America on the back of a strong greenback after markets begin year in a general risk-off mode following China PMIs slipping into contraction. 

The China Caixin manufacturing purchasing managers index fell to 49.7 in December, marking the first time the sector has been in contraction territory, (below 50), since May 2017. A reading below 50 signals contraction. However, that didn't stop gold futures to climb to the highest level since June following a decline in Asia’s share markets fuelling an appetite for the safe-haven assets. Eyes look to the psychological resistance at the $1,300.00 level.

Can the unemployment rate in the US go any lower?

The next key data will come up at the end of this week in the form of the US employment report. Analysts at ING Bank explained that growth is slowing, but this is more to do with a lack of available workers rather than a drop in demand. "The implication is wages will keep rising, supporting confidence and spending."

"The household survey, which is used to calculate the unemployment rate, has also been showing impressive employment gains. Having started the year at 4.1%, the unemployment rate has held at 3.7% for the past three months, and we suspect it will do so again in December. We have to go all the way back to December 1969 to find a lower figure, which underlines how tight the jobs market is right now. After having ticked a touch higher last month, we expect the underemployment rate – a broader measure of underutilised workers, such as those that are working part-time but want a full-time job - to drop back to 7.4% (the lowest since March 2001)."

Gold levels

The technicals remain bullish. RSI still has room to go until it meets prior highs for 2017 and 2018 levels. The 2018 50% Fibo level at 1262 was a key target which has been breached and so too has 1287 as the 2018 61.8% Fibo. On the flipside, the 21-D SMA is now found down at 1253, with the confluence of the 200-D SMA. 

 

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