Gold: Potential Signals Point to a Deeper Correction

Spot gold sank 1.5% on day to $1,686 on last Friday, as investors were shocked by a 2.5 million increase in U.S. nonfarm payrolls in May…

Spot gold sank 1.5% on day to $1,686 last Friday, as investors were shocked by a 2.5 million increase in U.S. nonfarm payrolls in May. The surprising growth in jobs signals that the worst for the labour market is probably over, and could mark a turning point for gold price, which had surged as much as 20% from March.

The Federal Reserve will release its monetary policy statement on Wednesday and investors will watch closely if the latest jobs report would affect Fed’s stance.

From a technical point of view, spot gold has broken below a rising wedge pattern as shown on the daily chart, signaling a potential downturn. Moreover, it has breached below the 50-day moving average, while the relative strength index has shown a bearish divergence. Bearish investors might consider $1,725 as the nearest resistance level, with prices likely to test the 1st and 2nd support at $1,645 and $1,610 respectively. Alternatively, a break above $1,725 would indicate that gold has stabilized and trigger a revisit to $1,755 on the upside.

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