XULF Report
Disappointing numbers from the ADP and Non-Manufacturing reports has so far produced an uninspiring set of data from the US this week. The private sector job creation is at a modest pace feeling the effects of government spending cuts which is causing extra anxiety ahead of the US Department of Labour jobs report this Friday. There are a lot of concerns at the moment and this is manifested in the pullback in equities at present. Without strong US data to offset the pessimism surrounding the Eurozone’s recession, China’s slowdown and scepticism over Japanese Prime Shinzo Abe’s growth plans we could a significant equity correction. The question of how gold will perform during an equity correction is subject to whether that correction occurs because of poor US economic data or because the stimulus tapering is going to happen sooner than anticipated. The former would be better for gold.
The uncertainty in the markets at the moment is nicely illustrated on the 4 hour chart. The bullish medium term trendline is still intact, although it has been fighting off a few attacks from the bears of late, but combined with the blue descending trendline we have a symmetrical triangle emanating the wait-and-see mode of the market ahead on Friday’s Non-Farms. Trade any breakout very cautiously before the Non-Farms as we could see a false breakout. Also be aware there will be considerable volatility when ECB President Mario Draghi speaks at a press conference at 20:30 tonight as investors listen for clues as to what is the next move for the ECB amid a dire Eurozone. Unless Draghi gives an aggressive and determined stance towards supporting the Euro traders are likely to short the Euro which will push gold lower. If we get a downside break $1388, $1384 and $1373 are the short term targets as these are levels buyer interest will increase. A break to the upside target $1410, $1417 and $1421.
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