The US ADP labour data surpassed expectations
The US ADP National Employment Report (published on Friday) surpassed expectations, causing the US Dollar to rally, while gold and silver strongly declined.
Nonfarm payrolls (for July) were announced at + 940,000, approximately 50-70 thousand more than forecasted by analysts. This data has been seen as a confirmation of the solidity of the US labour market, increasing chances that the Federal Reserve will begin the process of reducing liquidity - tapering - sooner than expected.
The market reaction was remarkable, with the Dollar index strongly recovering, while EUR/USD plummeted to 1,175.
The reaction of Gold
The gold price has been strongly hit by the strength of the greenback, falling in a couple of hours from $1,800 to 1,760 on Friday.
From a technical point of view, after weeks of laterality, we had a weak signal as prices managed to leave the lateral trading range of $1,790 – 1,820.
The new week started in dark red
The new week has started with further losses, as bullion was involved in a flash crash, falling in the night below $1,700.
Bullion price has fallen overnight (Monday) - Kinesis Exchange
The bearish momentum, generated by the US ADP data, as well as growing expectations for an expedited tapering process, played a key role in this crash, which was possible also due to the low liquidity seen on a Sunday night in August.
Indeed, at midnight (Central European time) gold was still traded at $1,750. Bullion crashed at around 00:45, losing up to 5%, and reaching a minimum of $1,678 just 15 minutes later.
However, the gold price recovered immediately and at 3:30 the price was already back to $1,735 – 1,740, confirming that the initial fall was an overreaction of the markets in a scenario of low liquidity.
The bottom reached in the night can now represent a key level, while bullion should now be able to find more support zones between $1,700 and $1,720.
The technical picture for silver remains fragile. The precious metal tried to rebound last week, however, it failed to reach the resistance zone of $26, falling back to $24,2 in the final trading hours.
In conjunction with the gold crash, in the middle of the European night, silver plummeted. Just before 1 a.mCET silver was traded below $23, before recovering a great part of the losses. The price seems to have now stabilized between $23,8 and $24.
As for gold, markets overreacted, reducing (probably too quickly) long positions in portfolios on gold and silver. The reason behind this is still related to increasing betting on a hawkish Federal Reserve.
Overall, the short term scenario is still bearish, as the strength of the greenback, combined with tapering expectation, hit the majority of commodities. This was shown also by the -7% achieved last week by the West Texas Intermediate and Brent Crude, the two major benchmarks for oil.
Carlo Alberto De Casa is Market Analyst for Kinesis.
He also writes as a technical analyst for the Italian newspaper La Stampa.
Carlo Alberto provides regular commentary for UK outlets including the BBC, Telegraph, the Independent Bloomberg & Reuters. He is also a commentator for CNBC Italy. He worked for Bloomberg as their Equity Research Fundamental Analyst before joining brokerage ActivTrades in 2011 to specialize in currency markets and commodities. In 2014 he published a book on gold and the gold market, followed by a new updated edition in 2018.
This report is not an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance.