Gold (XAU/USD) Looking Technically Oversold, US Data, NFPs Key for Next Move

GOLD (XAU/USD) ANALYSIS AND CHART

  • The Commodity Channel Index (CCI) indicator is at its lowest level since early May, suggesting the precious metal is technically oversold.
  • Weaker US Treasury yields should provide some support for gold prices.
  • Key upcoming economic releases, including the US ISM data and the latest US Jobs Report, will be crucial in driving gold’s next move.

Gold is trading slightly higher in mid-morning trade, attempting to establish a near-term base just below the $2,320 per ounce level. This resilience is partially attributed to the recent decline in US Treasury yields. After peaking at 5% by the end of May, the yield on the rate-sensitive 2-year Treasury note has retreated to 4.80%. A break below the supportive 200-day simple moving average at 4.75% could leave the multi-week low of 4.70%, made on May 16, vulnerable.

The recent series of higher highs in Treasury yields have been disrupted, signaling a potential end to this year’s yield rally. The Commodity Channel Index (CCI) indicator suggests that the market is currently oversold, implying a likely short-term period of consolidation before the highly anticipated US Jobs Report (Non-Farm Payrolls) is released this Friday (13:30 UK time).

UST 2-YEAR YIELD CHART

GOLD DAILY PRICE CHART

Surprisingly, gold has exhibited resilience in recent days, failing to benefit from the weak US economic data and growing expectations of Federal Reserve rate cuts. In this context, market participants eagerly await the release of the latest ISM services data later today, which will be closely scrutinized. Forecasts suggest the May services figure will come in at 50.5, compared to 49.4 in April. Any downside miss in this crucial economic indicator could provide the catalyst for gold to push higher. However, the highly anticipated Non-Farm Payrolls (NFP) report, scheduled for Friday, will ultimately decide the precious metal’s short-term trajectory heading into the weekend.

The daily chart reveals gold consolidating within the $2,320 to $2,330 per ounce range ahead of the ISM data release. Significantly, the Commodity Channel Index (CCI) indicator shows gold at a multi-week oversold level, while the precious metal is currently trading below both the 20- and 50-day simple moving averages. Should a further move lower materialize, support is expected to be found at the $2,280 per ounce level. In the short term, gold’s performance remains heavily data-dependent, with market participants closely monitoring economic releases and their potential impact on the Federal Reserve’s monetary policy stance.

The 2-year US Treasury yield has been a key focus for investors, as it directly influences the outlook for interest rates and, by extension, the appeal of non-yielding assets like gold. After peaking above 5% in late May, the 2-year yield has retreated to around 4.80%, providing some respite for the precious metal. A sustained move below the 200-day simple moving average at 4.75% could open the door for further yield declines and potentially support a recovery in gold prices.

Ultimately, the trajectory of the 2-year UST yield, alongside the upcoming ISM services data and the pivotal NFP report, will be instrumental in determining the near-term direction for gold. Market participants remain keenly attuned to these key economic releases, as they seek to gauge the Federal Reserve’s policy path and its implications for the precious metal.

Retail trader data shows 61.47% of traders are net-long with the ratio of traders long to short at 1.60 to 1. The number of traders net-long is 6.53% higher than yesterday and 5.93% lower than last week, while the number of traders net-short is 12.80% lower than yesterday and 4.17% lower than last week.

We typically take a contrarian view to crowd sentiment, and the fact that traders are net-long suggests that gold prices may continue to fall. The positioning is more net-long than yesterday but less net-long than last week. The combination of current sentiment and recent changes gives us a further mixed gold trading bias.

The daily gold chart paints a technically neutral picture, with the precious metal consolidating within a tight $2,320 to $2,330 per ounce range. Significantly, the Commodity Channel Index (CCI) has dipped into oversold territory, indicating the potential for a short-term rebound, should the technical conditions improve.

However, the fact that gold is currently trading below both the 20-day and 50-day simple moving averages suggests the path of least resistance may be to the downside in the near term. A breakout below the $2,280 per ounce support level could open the door for a deeper correction, with the 200-day SMA around $2,250 becoming the next key support to watch.

Ultimately, gold’s performance will be heavily influenced by the upcoming economic data releases, particularly the ISM services report and the highly anticipated Non-Farm Payrolls figures. These data points will be crucial in shaping market expectations around the Federal Reserve’s monetary policy trajectory and, in turn, the outlook for the yellow metal.

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