Gold trading reminder: Gold prices surged but then fell after the dismal non-farm payrolls. Do bulls still have a chance?

At the beginning of the Asian session on Monday (August 5), spot gold fluctuated in a narrow range and is currently trading around $2,440/ounce. Last Friday, the price of gold rose and fell. Earlier, because the US non-farm data was worse than expected, it once rose to around $2,477.58/ounce, but then the bulls took the opportunity to take profits, and the price of gold gave up the gains and turned from rising to falling. The lowest point during the session was $2,410.71/ounce and closed at $2,441.27/ounce. The sharp drop in the US dollar index and the lingering concerns about the geopolitical situation in the Middle East still attracted bargain-hunting buying to support the price of gold.

There are relatively few economic data this week. The focus of this trading day is on the US ISM non-manufacturing PMI data in July. The market expectations are relatively optimistic, and the short-term may put the price of gold at risk of further correction.

In addition, this week will usher in speeches by many Fed officials. Investors need to pay close attention and pay attention to changes in market expectations for the Fed's 50 basis point rate cut in September.

Last Friday (August 2), the U.S. Department of Labor data showed that non-farm payrolls increased by 114,000 in July, far below the average economists' forecast of 175,000 and below the at least 200,000 that economists believe is needed to keep up with population growth. The unemployment rate jumped to 4.3%, the highest in nearly three years.

The unemployment rate has risen from a five-year low of 3.4% in April 2023 to the highest since September 2021, making the Fed's September rate cut almost certain, and economists even expect a 50 basis point cut. They believe that the Fed is likely to lag behind the development of the situation in easing monetary policy.

These data have heightened concerns that the economy is slowing faster than expected and that the Fed was wrong to keep interest rates unchanged at the policy meeting that ended on Wednesday.

According to the CME FedWatch Tool, the market believes that the probability of a 50 basis point rate cut at the Fed's September meeting has jumped to 69.5% from 22% in the previous trading day.

Jim Wyckoff, senior market analyst at Kitco Metals, said in a report: "The market now believes that the probability of the Federal Reserve cutting interest rates by 50 basis points at the Federal Open Market Committee (FOMC) meeting in September is more than 70%."

Affected by this data, the US dollar index fell sharply last Friday, closing at 103.21 at the end of last Friday, down 1.1%, and hitting an intraday low of 103.12, the lowest since March 14. The US dollar recorded its largest single-day percentage drop since November last Friday. As a result, gold prices rose to around $2,477, but as stocks fell, profit-taking occurred in the gold market, causing gold prices to give up gains.

U.S. stocks were sold off for the second consecutive trading day on Friday, with the Nasdaq index confirming that it entered a correction range and the S&P 500 index closing at its lowest level since June 4. Both the S&P and the blue-chip Dow Jones Industrial Average recorded their largest two-day declines since March 2023.

As of Friday's close, the Dow Jones Industrial Average fell 610.71 points, or 1.51%, to 39,737.26; the S&P 500 fell 100.12 points, or 1.84%, to 5,346.56; and the Nasdaq fell 417.98 points, or 2.43%, to 16,776.16.

Phillip Streible, chief market strategist at Blue Line Futures, said, "Investors were caught off guard by this stock market sell-off. People had expected that the stock market might turn to other industries, but stocks fell across the board on August 2. Investors were forced to sell profitable gold positions to support their stock bets. I am not worried about gold because this sell-off will prove to be short-lived. I expect this decline to be bought."

Chris Vecchio, head of futures strategy and foreign exchange at Tastylive, said he also believes that any weakness in gold is a buying opportunity. He believes that gold weakness is just investors raising cash.

It should be reminded that the tense geopolitical situation in the Middle East will also limit the correction space of gold prices in the short term. US and Israeli officials expect Iran to launch an attack on Israel on Monday.

On July 31, Hamas Political Bureau leader Haniya was attacked and killed in Tehran, the capital of Iran. Iran accused Israel of being the mastermind behind the attack and vowed to retaliate. In this regard, Iranian political analyst Mughaddam said that Iran's actions against Israel will combine political and military means, and will coordinate with regional resistance forces. Iran's plan to deal with Israel is "comprehensive" and will be implemented in steps, with the last step being military action, which may increase tensions in the region. Iran uses diplomatic means to seek solutions against Israel, and will also adopt cyber, psychological and electronic warfare methods. Iran will also coordinate with the resistance front to take action against Israel. We will try to destroy Israel's ability to take the next action.

According to the Wall Street Journal on August 2, an Iranian diplomat said that it was fruitless for many countries to try to persuade Iran not to retaliate against Israel, and Iran would launch a "lightning-hard" counterattack. An Iranian diplomat who has been briefed by the Iranian government reportedly revealed that in view of Israel's recent attacks, it is fruitless for multiple countries to persuade Iran not to escalate the situation. "It makes no sense. Israel has crossed all red lines, and we will launch a lightning-fast and tough response," the official said. The source also said that Iran and Lebanon's Hezbollah believe that the response to Israel "should be more intense than the shelling launched in April" in any case. Lebanon's Hezbollah also said that the response may not be a single attack, but a series of actions.

According to the Times of Israel, an Israeli official told the Walla news website that the commander of the US Central Command, Michael Eric Kurilla, will arrive in Israel on Monday to complete preparations for defense against expected Iranian attacks with the Israel Defense Forces.

According to Israel's Channel 12 TV, Israel is ready to respond to potential attacks from Iran and Hezbollah in the coming days and assess that these attacks may come from "several fronts." According to the report, Israeli security agencies are on "high alert" and members of the US-led international coalition aimed at thwarting such attacks are ready to try to prevent and intercept these attacks. Israeli leadership has been discussing how Israel would respond to such attacks, including "preparing to enter a full-scale war in this case." As it stands, there is no change in the instructions given to the public by the Home Front Command. The IDF stressed that if the situation changes, the public will be notified immediately.

On August 3, the most influential newspaper in the Iranian conservative camp, the World News, which is regarded as the "mouthpiece" of the Supreme Leader, pointed out in an editorial on Saturday that Iran's retaliatory actions against Israel in April only targeted a few bases outside Israeli cities, while the upcoming action will target the hinterland of Israel, such as Tel Aviv and Haifa, strategic centers, and the residences of Israeli officials involved in the assassination of Haniya. "The upcoming action will be more diverse, more dispersed, and more difficult to intercept," the article said. The article added that in Iran's upcoming retaliatory actions against Israel, long-range and precision missiles and drones will definitely be one of the options on the negotiating table. However, unlike the attack on Israel in April, the options this time may not be limited to two or three types of missiles and drones launched from 1,500 kilometers (932 miles) away and only from Iran.

From a technical perspective, spot gold has recorded a doji for two consecutive trading days on the daily level, suggesting that the upward momentum has weakened. Investors need to be wary of the possibility of gold prices fluctuating at a high level and peaking. Pay attention to the support near the 2400 mark. If this support is lost, short-term bearish signals will increase. Further stronger support can be found near the 50-day moving average of 2366.