Comex Gold Futures (GC) Technical Analysis – August 4, 2016 Forecast

December Comex Gold futures are trading lower early Wednesday. Sellers are following through to the downside after Wednesday’s weak session. The stronger U.S. Dollar is helping to pressure the market. It picked up strength yesterday following stronger-than-expected U.S. employment data.

On Wednesday, payroll specialist ADP released is nonfarm payrolls data. The report showed the private sector added 179,000 jobs in July. This was higher than the 170,000 estimate and sets the tone for strong U.S. Non-Farm Payrolls report on Friday.

Economists polled by Reuters estimate U.S. Non-Farm Payrolls rose by 180,000 in July. They are also forecasting the unemployment rate to edge lower to 4.8 percent from June’s 4.9 percent.

On Thursday, the Bank of England is expected to cut its benchmark interest rate by 25-basis points and perhaps announce additional stimulus. This will be the Bank’s first rate cut since the Brexit referendum on June 23. The rate cut is widely expected and probably priced into the market so it’s difficult to predict how the British Pound will react to the rate cut. It’s important, however, because the U.S. Dollar will respond to the Sterling’s move. A stronger dollar should be bearish for gold. A weaker dollar should underpin gold prices.

Gold is also likely to respond to the movement in the U.S. equity markets. Since they are competing investments, gold prices may suffer if stocks trade higher.

TECHNICAL ANALYSIS

Technically, the main trend is up according to the daily swing chart. The price action the last two days, however, suggests that momentum may be getting ready to shift to the downside. The market may also be forming a potentially bearish secondary lower top at $1374.20, but it’s too early to tell. Right now it looks like buyers are will to pay up for gold so close to the $1384.40 top.

Gold could become range bound over the near-term if stocks and the U.S. Dollar stabilize. It is not likely to take out the high for the year unless stocks break sharply along with the dollar.

The short-term range is $1318.50 to $1374.20. Its retracement zone at $1346.40 to $1339.80 is the primary downside target. A break into this zone will represent value and likely attract buyers.

Based on the current price at $1357.10, the direction of the market the rest of the session is likely to be determined by trader reaction to the uptrending angle at $1358.50.

A sustained move under $1358.50 will indicate the presence of sellers. The daily chart is wide open under this angle so we could see an acceleration to the downside with $1346.40 the next likely downside target.

Overcoming $1358.50 will indicate that buyers are coming in to defend the market. Overtaking a downtrending angle at $1363.40 will indicate the buying is getting stronger. This could generate enough upside momentum to challenge the downtrending angle at $1373.90.

CONCLUSION

Gold is making an early move to the downside. If the selling is real then the move should begin to accelerate under $1358.50. Trader reaction to this price will determine the direction of the market all session.

I like the short side on a sustained move under $1358.50 with a target of $1346.40, but I’m going to need help from a stronger U.S. Dollar and stock market.

The long side will become attractive on a sustained move over $1363.40 and once again a weaker dollar and a sharp break in equities will help fuel the rally.