Gold's Resilience to Upbeat US Jobs Data Shows Inherent Strength

Gold on Friday reversed the losses it suffered the previous day after better US jobs data, prompting analysts to attribute it to the yellow metal's inherent strength.

The XAU/USD fell to $1319 from near $1326 on Thursday as the US saw a stronger than expected non-farm payroll increase of 288,000 compared to the market consensus of 212,000 and the previous month's 224,000.

The metal, however, made a comeback on Friday. It rose to $1323, confirming the $1306 support line, which is also endorsed by the 14-day exponential moving average.

"That gold managed to hold well after stronger-than-expected US employment data is quite impressive, especially considering the recent buildup in longs," UBS said in a research note.

"The yellow metal's resilience comes in the face of lower oil prices, a stronger dollar, higher US 10y yields and equities at record levels. Oil has given back over 4% from the peak in late June; the DXY index is back above 80, US 10y yields are at the highest since April at 2.68% and the S&P 500 Index is at an all-time high of 1,985."

"Against all these factors, gold appears to be showing some internal strength," the Swiss bank said.

In the week to July 3, Gold ETF holdings advanced 0.40moz to 59.27moz, the ETF data base showed. Investors added 366koz to their holdings in the SPDR fund, 21koz in the iShares fund, 19koz in the db Physical Gold Euro Hedged fund, 11koz in the ETFS (LSE) fund and 10koz in the GBS (LSE) fund.

Technical Outlook

The greenback's decline on 19 June following Fed Chair Janet Yellen's dovish comments had pushed gold through the upside barrier of a downward channel and led to a close above the 61.8% Fibonacci retracement of the March-June downtrend.

Then the rise on 30 June strengthened the case for a reversal of the downtrend, which is now made even stronger with the resilience to such strong US data.

Upside risks in the metal have exposed levels like $1342 and $1354.69 ahead of the March peak of $1392. Then comes the August 2013 peak of $1433.

On the downside, the metal will have a stop at $1300, the 38.2% mark which is, however, a weak support compared to the 23.6% level of $1276.40.

The next downside levels are $1240 and $1214 ahead of the December 2013 low of $1182.14.