- Gold’s struggle at holding $2,000 visible after Tuesday’s about-turn
- U.S. jobs report on Friday could help decide metal’s near-term direction
- Spot gold has to stay above $1,987; futures above $1,982 for return to $2,000
- Spot Gold
- Gold Futures
Now you see it; now you don’t.
In a matter of hours, gold went from $2,000 an ounce at Monday’s settlement to back below the key bullish mark by Tuesday’s early trading. The close of the previous day had looked suspect anyway.
In an unusual disconnect, the spot price of gold, reflected by trades in bullion, was trailing far behind the benchmark futures contract on New York’s Comex. Typically, the difference between the two is a couple of dollars to ten in favor of futures.
But at Monday’s settlement, the gap blew out when the December futures contract became Comex’s new benchmark for gold. December gold had been hovering at $2,000 even when the previous front-month, August, swung between low and mid-$1,900 levels.
Charts by SKCharting.com, with data powered by Investing.com
December gold settled Monday’s trade at $2,009.20 per ounce, up $9.30, or 0.5%, on the day and 4% higher for July. During the session, it hit a three-month high of $2,010.85.
The spot price of gold hovered well below Monday’s peaks in futures. It eventually closed Monday’s session at $1,964.19 — some $45 off the futures price.
At the time of writing, during Tuesday’s Asian session, December gold hovered at $1,995 while the spot price was around $1,997 — back to their usual trend.
As with gaps between futures and spot prices in other commodities, this too had been expected to converge — though the speed at which gold futures corrected suggests the yellow metal might have trouble holding on to $2,000 once it gets there again.
Gold Fundamentals
July was a difficult month for gold longs. The spot price came just about $2 short of breaking the $1,900 support as the dollar rebounded from 15-month lows on a renewed hawkish talk by the Federal Reserve — which had been expected to be more dovish after aggressive rate hikes carried out over 18 months.
The Fed has repeatedly shown in recent months that nothing mattered more to it than bringing U.S. inflation back to the cherished long-term target of 2% and that the central bank will stay focused on relevant data — not market sentiment — to achieve that. And one of those key data points will emerge Friday when U.S. job numbers for July get reported.
The Fed needs to keep a lid on U.S. jobs and wage growth to keep inflation down. On Friday, the central bank will see how effective its high-rate regime has been in moderating these when the jobs report for July is published. Economists are forecasting growth of 200,000 non-farm payrolls on the average for last month versus June’s 209,000. The June figure was particularly an important one for the Fed as it came below economists’ estimates for the first time in 16 months, signaling progress in the Fed’s bid inflation-fighting efforts.
From a four-decade high of 9% in June 2022, the Fed has managed to bring inflation to just 3% per annum in June this year. But the success came with a big price: the raising of interest rates by 525 basis points in just 18 months to smother the runaway inflation triggered by the trillions of dollars of relief spending by the government on the COVID-19 pandemic.
“If Wall Street starts to aggressively [price] in rate cuts by the first quarter of 2024, gold could easily find a home above the $2,000 level,” said Ed Moya, an analyst at online trading platform OANDA. “It seems gold will need to wait for … the NFP report, before it delivers its next big move.”
Gold: Technical View
Following two weeks of indecisive and sideways price action, spot gold appears stuck in a defensive mode above the 5-week EMA, or Exponential Moving Average, of $1,954, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.
Gains, meanwhile, were capped below the weekly Middle Bollinger Band of $1,968, he said. 
“Further development calls for a $40 range break of the previous week's high of $1,982 and low of $1942,” Dixit added.
Major support for spot gold now appears to be at the 5-month EMA of $1,945. He said July’s high of $1,988 will prove to be major resistance.
“The fact that the July candle broke above the June high of $1983 and closed with bullish momentum and with stability above $1960, any corrections towards $1,950 and $1,945 will attract buyers for resuming uptrend,” Dixit said.
He added,
“This initially targets retesting the swing high of $1,987. Breaking above $1,990 provides additional affirmation fuelling further advances towards $2,070. But a break below $1,900 will invalidate the uptrend.”
Gold futures have opened with a runaway gap starting with $1,983 on the weekly time frame and $1,972 on the daily, while the 4-hour showed a gap at $1,962, Dixit said.
“These runaway gaps will be filled in eventually, later or sooner and we are very likely to witness a price rebalancing for equilibrium in futures and spot,”
“All the same, we cannot rule out a short term stabilization above the immediate support base formed at $1,982 and $1,972, which can act as a launch pad for further advances towards $2,070 over an extended time period.”
***
Disclaimer: The content of this article is purely to educate and inform and does not in any way represent an inducement or recommendation to buy or sell any commodity or its related securities. The author Barani Krishnan does not hold a position in the commodities and securities he writes about. He typically uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables.