U.S. traders have just returned from the Independence Day holiday and will face the biggest test of the week: the final June non-farm report, which is expected to show that U.S. labor market conditions will cool down.
Economists' consensus forecasts show that U.S. job growth slowed in May, with nonfarm payrolls expected to increase by 190,000. However, the unemployment rate is expected to remain at 4%, partly due to an expected decline in the labor force participation rate last month. With the market focused on inflationary pressures, the key detail in the labor market report is the average hourly earnings data. After an unexpected jump to 4.1% last month, the reading is expected to fall back to 3.9%.
If the data is in line with expectations, it will undoubtedly strengthen the case for the Fed to cut interest rates, which will be good for precious metals. But Christopher Lewis, market analyst at FX Empire, said that even if gold and silver prices fall after today's non-farm payrolls report, traders should view it as a buying opportunity.
“The gold market was very quiet on Thursday, but that shouldn’t come as a surprise given that it was Independence Day and volume in the futures market itself was very limited,” Lewis wrote. “Nevertheless, the charts suggest the trend is to the upside for gold.”
Lewis noted that Friday's non-farm payrolls report will have a significant impact on the future direction of gold prices. "Because of this, frankly, I would like to see some kind of sharp pullback that I can accept," he said. "For the foreseeable future, I still believe that this upward trend will continue because frankly, there are too many factors that are favorable to gold."
He explained, “First of all, of course, the major central banks, Russia, China, India, and many other central banks are buying gold. And the Western countries, especially the United States, are borrowing a lot of money, which will eventually lead to a devaluation of the dollar. So in the long run, this will indeed push up the price of gold. Of course, there are also a lot of geopolitical risks.”
“And the fourth reason is that gold is in an uptrend,” he further added.
Lewis said the gold market has been “de-bubbling a little bit” for a few months, but he believes “gold will eventually get to the $2,400 level and then potentially break above that.”
“A pullback to the 50-day moving average, or better yet, the $2,300 level would be a good entry point in my opinion,” he said. “I have no interest in shorting gold, and at this point, even if gold falls below that level, it just provides me with a lower entry cost.”
Speaking of silver, Lewis noted that he will be watching the performance of silver after the release of the non-farm payrolls data. Like gold, he hopes that silver will see a pullback.
“Silver could go down from here, but I think that will ultimately become a buying opportunity,” he said. “The $30 level will be the first support level, and below that is the 50-day moving average, which is close to about $29.25.”
“Whether silver will go all the way lower remains to be seen, but I do think that this will all depend on the dollar and how the market reacts to the jobs data,” Lewis said. “If the jobs data is stronger than expected, that could push the dollar higher, which would likely be bullish for silver, at least temporarily. But Wall Street is pretty convinced that a rate cut is coming, especially after Powell’s recent speech, so they will continue to try to push commodity prices higher.”
Lewis said it’s important to recognize that the U.S. dollar will largely determine silver’s price action in the near term.
“I don’t think there’s anything magical about this market other than it’s priced in U.S. dollars. So, we’ll just have to wait and see,” he said. “If silver turns around and breaks below $28.50, which I don’t think will happen on Friday, then this market could really start to break down. But I think it’s more likely that we’ll see silver challenge $32 in the coming weeks than see such a breakdown.”
The article is forwarded from: Jinshi Data
