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James Hyerczyk
Comex Gold

Gold futures closed slightly lower last week after posting a wicked two-sided trade, which may have been fueled by end of the month/quarter position-squaring or thin-volume ahead of the long Easter holiday weekend. The week was capped by a blow-out U.S. Non-Farm Payrolls report on Friday, but since the gold futures market was closed for a bank holiday, we’re not likely to know how investors really feel about the news until we see how Treasury yields and the U.S. Dollar react to the news.

Last week, June Comex gold settled at $1728.40, down $6.30 or -0.36%. This is up from a low of $1677.30.

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What really caused the late week reversal could become the topic of discussion when the market opens on Monday. Of course, we expect to hear from the usual analysts trying to pin the move on the dreaded “safe-haven” buying, but what is threatening the market at this time? Inflation? An expected fourth coronavirus wave in the U.S., or Europe or Asia? I’m curious as to how the brokers are going to spin this.

I’m going to say with clarity and conviction that the rallies on Wednesday and Thursday were likely fueled by a rogue buyer, trying to take advantage of the low volume and the lack of a professional stopper in the market.

If you study price action at all, or how bottoms are formed, you know that following a prolonged move down in terms of price and time, the first rally up from a bottom is usually fueled by short-covering. The real buyers, if there are any, typically come in on a 50% to 61.8% retracement of the first leg up.

We’re not recommending chasing the market higher especially with yields and the U.S. Dollar on the rise, but we will be willing to take a peek at the price action and order flow following a normal retracement of the first leg up. We will be willing to go long if the market can form a new secondary higher bottom.

Weekly Forecast

Although rising Treasury yields have been pressuring gold prices since early November, we know that at some time, gold investors will get used to the fact that interest rates are going to continue to move higher as the economy improves. Therefore, rising rates may not have that much of an effect on gold over the short-run. Long-term, the tone will be bearish, but over the short-run, we’re willing to accept a few strong short-covering rallies.

Any meaningful short-covering rallies will set up new short-selling opportunities in our opinion.

The robust jobs report should convince traders that the economy has turned for the better. So with that uncertainty out of the way, gold investors will now move on to the next potential issue. This is going to be about the Fed and whether the Fed will change policy sooner than expected. We could actually see a two-sided trade until it becomes clear that the Fed will make a move ahead of schedule, or continue to hold on to its loose policy.

For a look at all of today’s economic events, check out our economic calendar.
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