GOLD TODAY – Expect next direction to come from Friday’s employment report

Short Term: Medium Term: Long Term: Resistances: R1 1301 Break down level R2 1303.80 May high R3 1315 20 DMA R4 1348 Top of triangle R5 1359 Brexit-day peak R6 1375.25 High so far R7 1388 HRL R8 1434 Aug 2013 high Support: S1 1359 Previous peak S2 1322 UTL S3 1315 20 DMA S4 1310.65 July low S5 1302.55 Sep 1 support S6 1301.20 SL S7 1249 38.2% Fibo S8 1199.85 May low S9 1046.40 Dec low Stochastics:Bearish Legend: R/SL= Resistance/support line HRL = horizontal resistance line UTL = Uptrend line BB = Bollinger band Fibo = Fibonacci retracement line H&S = Head-and-shouder pattern Technical Comment Analysis The sideways trading was bound to end one way or another and a break lower on stale long liquidation is no surprise. The height of the descending triangle was $70; a similar swing lower from the breakout level would suggest a move to $1,230 per oz. The 38.2% Fibo of the whole of this year’s rally is at $1,249 per oz, with the 50% Fibo at $1,210.  The stochastics have fallen sharply so at least we would expect some consolidation in the low ground for a while. Macro picture The shake-out on stale long liquidation seemed highly likely; it was merely a question of timing. We remain bullish overall though, for the following reasons:  High global debt and how can that be dealt with US election – will there be another populist result there? Negative interest rates  Geopolitical unrest Potential for broad market corrections, especially in bonds and equities. But the closer we get to the November and December FOMC meetings, the more nervous the market might become about a US interest-rate rise so the market might start to discount that, which could be bearish for gold prices for a while. It may well be starting to be discounted now. This sell-off could prompt pent-up physical buying from the likes of jewellery manufacturers but they may want to see that prices have found support first. Given US non-farm payrolls on Friday, October 7, we would imagine trading will be choppy until the data provides direction on the likelihood of a rate rise. Poor data could prompt buying and this week’s sell-off could then end up being a downward spike. With the selling happening on Tuesday, October 4, the funds’ response should show up in Friday’s CFTC data – we should see whether it was driven by long liquidation or fresh selling. If confidence has been damaged, the size of the funds’ gross long position could mean there is considerable profit-taking to be done. Conclusion The sell-off has knocked prices out of their sideways range and the price weakness should now revive buying interest – key will be to see how much long liquidation there has been or whether the longs remain committed, with the driver for this weakness having been short selling. If that is the case, it would strength the case for the rally to continue in the weeks ahead. With the US election less than a month away and a US rate rise also likely in the fourth quarter, the market has a lot to think about. We feel investors will continue to want safe-haven cover in the months ahead so we expect this dip to be short-lived.   All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

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