Gold Prices Struggle To Maintain March Gains- US CPI On Tap

Fundamental Forecast for Gold: Bullish

• Gold defends monthly open support post-NFP; near-term outlook constructive

Gold prices are poised to close the week fractionally high with the precious metal trading at 1323 ahead of the New York close on Friday. It’s been a volatile week for bullion but the precious metal continues to hold a well-defined range after turning sharply from key support last week and prices are struggling to hold on to the early March gains.

A strong jobs report on Friday offered some support to gold prices with U.S. Non-Farm Payrolls (NFP) topping expectations with a print of 313K for the month of February. A strong read on labor force participation also highlighted underlying strength in the employment sector with a print of 63% (highest since September). Despite the job gains however, wage growth remained sluggish a downward revision to last month’s average hourly earnings accompanied by a miss in February at just 2.6% y/y (previously 2.8% y/y). The release is unlikely to alter the Federal Reserve’s expectations for three rate-hikes this year with gold finding solace into the close of the week.

Last week we noted that, “the technical levels remain clear with this week’s low marking a precise 100% extension off the highs- so is a low in place?” Gold prices have preserved this low with near-term price action pointing to a more constructive outlook next week. All eyes will be on the U.S. Consumer Price Index (CPI) report on Tuesday for an updated assessment on inflation outlook.

• A summary of IG Client Sentiment shows traders are net-long Gold - the ratio stands at +2.2 (68.8% of traders are long)- bearishreading
• Long positions are 1.8% lower than yesterday and 5.8% lower from last week
• Short positions are 4.9% higher than yesterday and 14.6% higher from last week
• We typically take a contrarian view to crowd sentiment, and the fact that traders are net-long suggests Spot Gold prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Spot Gold price trend may soon reverse higher despite the fact traders remain net-long.

Gold Daily

Price Chart

Failure to close below the March 1st low-day close at 1316 this week would keep the rebound play viable next week. Initial resistance now at 1325 backed by 1339 with a breach above the 2016 high-day close at 1355 needed to mark resumption of the broader uptrend. Key confluence support & bullish invalidation steady at 1301/02 where the 100-day moving average, 100% extension and 50% retracement converge on a pair of slope lines.

Gold 120min Price Chart

A closer look at gold sees prices trading within the confines of a proposed modified pitchfork formation extending off the monthly lows. It may be a bit too early to rely on this slope but it does further highlight near-term support at 1316/17 where the low-day close converges on a basic 61.8% retracement of the advance.

Bottom line: IF prices are heading higher, support into this level should hold. A breach above the median-line shifts the focus back towards the 1339 target and the upper parallel / 2017 high-day close at 1346.