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Day 5: our spot gold trade

We suggested on Monday that traders could look to sell gold at $1390, with a stop at $1435 and a potential target of $1348.

After a shaky start the trade is now working in our favour, with gold hitting a low of $1365 in US trade. The trade-off between improving (and dare we say it, solid) global and US data, against a backdrop of geo-political risks continues to play out; however it seems the improvement in data is having the greater effect on gold.

We highlighted the trend break at the beginning of the week and you can now add the closing break of the 21-day moving average at $1376. Gold will now target the 100-day moving average at $1359, where a break of this level should bring our target of $1435 into play.

In upcoming US trade we get the all-important non-farm payrolls and the market expects 180,000 jobs to be created. If we look at the forward indicators as a guide for the US payrolls report importantly we have seen a fall in the four week average for the weekly jobless claims. The employment sub-component in the manufacturing and services ISM report has also shown strong expansion, especially in the services report, which is important because over 70% of US growth is impacted by retail spend. Certainly the services ISM employment sub-component (at 57) is thematic of a payrolls report above 200,000, which, if this were to materialise, should send gold tumbling.

We however stay cautious on the US payrolls report and have seen it many times before where the leading indicators predict one thing and the actual print comes out nowhere near expectations. With this in mind, traders could look to tighten stops to $1405 (just above yesterday’s session high and the 50% retracement of the recent sell-off from the $1434 high).

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