The gold market is lower on Thursday as the market sees an expected pullback following recent strength. The yellow metal may be susceptible to more downside in the days ahead if the data stream is stronger than expected. That was already the case today when the latest ADP jobs data beat expectations handily. The ADP report showed a rise of 235,000 jobs for December while consensus estimates were looking for a rise of 153,000 jobs. The better-than-expected data could point to a stronger non-farm payroll report due for release on Friday, but the two reports have oftentimes shown very different results and so cannot be relied upon.
Friday’s jobs data may be the key data piece for the week. If the report is as expected, it may have little to no effect on markets. A large beat or a large miss, on the other hand, could potentially be market-moving. If the jobs report is weaker-than-expected, it could give the Fed more leeway on raising rates, possibly even leading to a pause by the central bank in its rate hiking campaign. A stronger-than-expected reading, however, could have the opposite effect and could give the Fed more reason to continue raising rates aggressively. Markets prefer lower interest rates compared to higher rates, and anything that may make it easier for the Fed to hold off or pause could be very welcomed by the markets. A weak jobs report could send gold to the next major resistance level at $1900 in short order. A strong report could also pave the way for gold to test the $1800 level on the downside.
The markets will be closely monitoring any new developments in the path of interest rates in the months ahead. After hiking rates by a smaller margin in December, markets now wonder if the Fed may resume its previous 75 point hikes or if it will take a slower approach and hike by 50 or even 25 points at a time. The central bank’s plans are currently unknown, but it won’t be long before the Fed provides some clues about its intentions.
In the meantime, the bulls and bears will continue to fight for control of the market on the daily chart. The bulls have a two-month old uptrend in place at this point and have enjoyed a recent upside breakout from the $1700 area. The bulls have, thus far, been able to hold the market above the key $1800 level in a sign of strength. As long as the market remains above this area, the bulls will have the edge and any dips may be aggressively bought. A breakdown below $1800, however, could give the bears some much-needed ful and could be the beginning stages of a move lower that could see $1700 challenged. A bearish breakdown below $1700 could get ugly, with little on the charts to get in the way of the market testing $1500 before finding willing buyers.