Spot gold prices are firmer in mid-morning action today as the latest jobs data did not disappoint. The non-farm payrolls data for April showed a rise of 428,000 jobs while the unemployment rate stood steady at 3.6%. This figure beat expectations for a rise of 400,000 and came just short of the March figure which was a rise of 431,000 jobs. Stocks are solidly lower today, with the benchmark Dow Jones Industrial Average down by over 250 points as of this writing.
Equity and risk asset weakness may be the key to higher gold prices. The stock market bears are showing their teeth again today following yesterday’s shellacking. There are now downtrends on the daily charts pointing to lower equities as the path of least resistance. The downtrend on the daily charts may support further selling as well as technical traders and momentum players look to ride any waves lower. As capital flows out of equity markets, much of it could potentially find its way into the precious metals space and into gold specifically.
Other outside markets are also giving gold a boost today. Crude oil is moving higher today, trading near $110.50 per barrel. The dollar, which has clearly been a major obstacle to higher gold, has come off of its 20-year high and is solidly lower today. Treasury yields remain elevated, however, as the 10-Year Note is currently fetching over 3.07%.
As the markets try to make sense of the Fed’s plans in the days and weeks ahead, more volatility may be seen. With downside pressure already building in equities and other risk assets, it may not even take much for them to really cave in and decline heavily. A major equity blowout, for example, has the potential to fuel significant buying in gold and other metals. This buying could take gold out of its recent trading range and could force a reckoning at overhead resistance levels. The bulls first have their sights set on retaking the $1900 level. From there, they will look to produce a close above key resistance at the $1950 area. Should this unfold, the metal could rapidly overtake the $2000 level or beyond and possibly test all-time highs.
The bears are looking to produce a close below key support at the $1850 level. If successful, the market could find itself very vulnerable to a substantial decline that could see prices test the mid-1700s before finding support. In that case, even the most determined bulls could throw in the towel, leading to a significant sell-off that could find itself exhausted quickly.
In the meantime, the yellow metal is likely to take its cues from both interest rate expectations as well as geopolitics. The ongoing war in Ukraine will be watched closely and could keep some sort of floor under the gold market as long as it rages on. The market is still in no man’s land, however, until key areas are breached either up or down.