Gold saw a strong rally following a softer-than-expected NFP report, causing a shift in market expectations. The market is now pricing in 59 basis points of easing by the end of the year, up from 35 basis points before the report. Attention is shifting to upcoming data and Fedspeak leading to the next FOMC decision in September.
It is anticipated that more favourable data will encourage Fed Chair Powell to consider a cut at the Jackson Hole Symposium. Gold is expected to remain in an upward trend as real yields may continue to decrease with Fed easing. However, hawkish repricing in interest rate expectations could cause short-term corrections.
Gold’s Daily Technical Analysis
In gold’s daily technical analysis, the price bounced before reaching the 3,245 support level, with buyers targeting the 3,438 resistance. On the 4-hour chart, the price broke above a downward trendline, with current support around 3,334. Buyers may continue pushing towards the 3,438 resistance, while sellers look for a drop back to 3,245 support.
On the 1-hour chart, the 3,334 level remains a focal point for buyers seeking a bounce, with potential increased buying on a break above 3,369. Upcoming catalysts include the US ISM Services PMI and US Jobless Claims figures.
The market has sharply changed its tune following the recent Non-Farm Payrolls report, which we saw come in softer than expected. Market pricing now suggests nearly 60 basis points of interest rate cuts by the end of the year, a huge jump from the 35 points priced in just before the data. This dovish repricing is the main driver behind gold’s recent rally.
For derivative traders with a bullish outlook, this creates a clear opportunity to target the $3,438 resistance level. Buying call options or setting up bull call spreads with strike prices below this target could capture further upside if the positive momentum continues. This strategy offers a defined-risk way to play the rally heading towards the next major technical barrier.
Monitoring Key Levels
However, we must watch the $3,334 level, which is now acting as a floor. A break below this support could signal that the recent rally is fading and attract sellers. Traders could prepare for this by considering put options to target a move back down towards the $3,245 support area.
Upcoming data this week will be critical for short-term direction and volatility. A US ISM Services PMI reading below 52.0 tomorrow, August 5th, would reinforce the dovish view, while a number above 54.0 could challenge it. Likewise, we will watch Thursday’s jobless claims, where a figure rising above 235,000 would further support the case for an earlier rate cut.
From our perspective, this environment feels similar to the market pivot we witnessed back in late 2023, when expectations of rate cuts first fueled a significant gold rally. The long-term trend for gold appears to be upward as the central bank looks to ease policy. However, as we saw in the first quarter of 2024, the path is never straight, and hawkish data can cause sharp, temporary pullbacks.
All eyes will now turn to any Fedspeak and especially the Jackson Hole Symposium later this month. We believe Fed Chair Powell may use this event to signal a potential September rate cut if the economic data remains soft. Any hint of hesitation or hawkishness from officials could quickly reverse the current sentiment, making flexible option strategies essential.
