Gold prices rallied from a two-week low after a very disappointing jobs report. The September report showed payrolls climbed only 142,000, much lower than the forecast of 201,000 gain. The unemployment rate stayed at 5.1%, but payrolls for the last two months were significantly lower. August’s reading was lowered to 136,000, quite a different story than what is usually a typically higher revised month. It was an overall terrible report, as average hourly earnings, hours worked, and the labor force participation rate fell to 62.4%, the lowest level since 1977. Job growth may run slower than we are used and this could delay the Fed’s tightening plan until next year.
Early in NY, gold prices are up 2.36% to $1,140 and the bullish rebound may see further upside over the coming weeks. The immediate reaction has taken gold above both key trendline resistance and the 50-day SMA. Further upside may find tentative resistance from the 100-day SMA, which is currently trading at the $1,145.50 level.
If we see a major rally here, major resistance may come from the $1,190 area. It is around that area that a bearish butterfly may emerge. Point D is targeted by both the 127.2% Fibonacci expansion level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C move. If valid we may see price sharply reverse and target the 100-day SMA.
The bullish stance may be invalidated if we see consecutive daily closes below the $1,100 psychological level.
The trade: Buy Gold at $1,135, with a stop loss at $1,125 and a take profit at $1,175. The risk/reward ratio is 1:4
Edward J Moya
Chief Technical Strategist
World Wide Markets Online Trading