Will Gold Breach The 1375 Threshold? Shorts Suggest Otherwise

Gold rose by more than 1 percent on Thursday, paring yesterday slide after BOE cut rates and the US reported the highest number of jobless claims since the end of June.

The Bank of England eventually cut its key rate after keeping it unchanged last month. In the monetary policy meeting on Thursday, BOE officials voted unanimously to lower the main lending rate by 25 basis points to a record-low 0.25 percent as expected by the markets. Besides, the target for the purchasing of government bonds was also raised to 435 billion pounds from the 375 billion total reached in late 2012.

The bank also stated that it will buy 60 billion pounds of government bonds over six months and as much as 10 billion pounds of high-grade corporate bonds in the next 18 months. Other schemes potentially worth up to 100 billion pounds are also expected to be launched to ensure banks keep lending even after the cut in interest rates.

The bond buying trend of central banks is pushing bond demand up and lowering the yields on government bonds in US, Europe and Japan, pushing investors towards adding gold into their portfolios when it comes to safe-haven assets.

According to the report released by the Labor Department, the number of Americans filing for unemployment benefits unexpectedly rose last week to a seasonally adjusted 269,000. Economists had forecast the claims to come in at 265,000, compared to 263,000 in the week ending on July 30th. Last week’s reading marks the highest level since June but the trend continues to point to a healthy labor market as claims have now been below the 300,000 threshold for 74 consecutive weeks, the longest streak since 1973. This can be considered a positive sign that more and more people are entering the labor market which is perceived to be either at or approaching full employment.

According to forecasts by economists, July Non Farm Payrolls due on Friday are likely to have increased by a healthy 180,000 jobs after surging 287,000 in June. The Labor market strength is expected to boost consumer spending, which is expected to accelerate the speed of U.S economic growth after the slowdown seen in the second quarter based on the Q2 GDP reading released last week.

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Fig: GOLD H4 Technical Chart

Gold is rocketing to Wednesday’s high at $1366.34, surpassing the short-term MA 20 at 1357.17. The Parabolic SAR band has started to move below the price action, helping support the price to surge further. With the cautious sentiment ahead the NFP, the target at 1375.00 – the one-month high – is within sight, but it is not expected to be reached soon even when the +DI is about to cross over the –DI line.

Trade suggestion

Buy Stop at 1363.00, Take profit at 1370.10, Stop loss at 1359.00

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